EcoSynthetix Reports 2014 Second Quarter Results

BURLINGTON, ON, July 31, 2014 /CNW/ - EcoSynthetix Inc. (TSX:ECO) ("EcoSynthetix" or the "Company"), a renewable chemicals company that produces a family of commercially proven bio-based products, today announced its financial results for the three and six months ended June 30, 2014. Financial references are in U.S. dollars unless otherwise indicated.

Second Quarter 2014 Highlights

• Net sales of $4.5 million for the three months ended June 30, 2014, (Q2 2014) compared to $5.5 million for the three months ended June 30, 2013 (Q2 2013)
• Introduced EcoSphere 2330, a new grade of biolatex, at PaperCon 2014, the seminal paper and paperboard event in North America
• Appointed Jeff MacDonald as Chief Operating Officer with responsibilities for business development, sales, operations and product development activities.

"We continue to increase our substitution rates within our North American customer base and we are experiencing a recovery in margins from last year's historic lows due to improved raw material prices. However, continued softness in butadiene prices impacted top line sales in the period," said John van Leeuwen, Chief Executive Officer of EcoSynthetix. "In order to return to the growth trajectory we expect from the business we are focused on three core areas: converting mill trials into customers within the paper and paperboard market, expanding into new markets - specifically building materials, and leveraging the power of our proprietary technology by developing new applications to expand our pipeline and drive growth. Our product development team continues to make strong progress in the development of new products which will provide a strong foundation for future growth."

Financial Summary

Net Sales

Net sales for the three months ended June 30, 2014 (Q2 2014) were $4.5 million compared to $5.5 million for the three months ended June 30, 2013 (Q2 2013), a decrease of 18%. The decrease was principally due to lower sales volume in Asia Pacific of $1.1 million resulting from continuing unfavourable market dynamics caused by the oversupply of butadiene and the related drop in butadiene and SB latex prices.  EMEA sales decreased $0.7 million due to the negative impact of the closure of a customer's coated paper production line announced in the fourth quarter of 2013.  The decreases in sales were partially offset by higher sales in North America and Latin America of $0.6 million and $0.2 million, respectively.

Net sales for the year-to-date (YTD) period were $9.5 million compared to $11.7 million in the same period last year, a decrease of 18%. The decrease in sales was primarily attributable to lower sales volumes in Asia Pacific and EMEA, which was partially offset by higher sales volumes to customers in North America due to increased substitution rates. EcoSynthetix has won two new customers year-to-date.

Gross Profit

Gross profit was $1.0 million or 21.0% of sales in Q2 2014 compared to $0.8 million or 14.8% in the same period last year. For the YTD period, gross profit was $1.9 million or 20.3% of sales compared to $1.9 million or 16.1% in the same period last year.

Gross profit as a percentage of sales, adjusted for manufacturing depreciation, was 27.7% and 26.6% for Q2 2014 and YTD, respectively, compared with 19.6% and 21.1% in the same periods last year. The increase in gross profit during both periods was principally due to lower raw material input costs and decreased manufacturing production costs partially offset by lower sales volume.

Selling, General and Administrative
(excludes share-based compensation, depreciation and amortization and foreign exchange loss or gain)

Selling, general and administrative (SG&A) costs were $3.3 million in Q2 2014 compared to $2.9 million in the same period last year. The change was principally due to higher salaries and benefits related to increased headcount compared to the prior year and a $0.5 million charge related to a payroll tax provision and employee severance costs.  For the YTD period, SG&A costs were $6.0 million compared to $5.9 million for the same period last year.

Research and Development
(excludes share-based compensation, depreciation and amortization and foreign exchange loss or gain)

Research and development (R&D) costs were $1.2 million in Q2 2014, which remained comparable to the same period last year. For the YTD period, R&D costs were $2.7 million compared to $2.5 million for the same period last year. R&D is a key focus of EcoSynthetix to enhance its bio-engineered product portfolio and expand into new applications and markets. The increase was primarily due to increased trial activity in order to bring new products to market compared to Q2 of last year.

Adjusted EBITDA¹

Adjusted EBITDA was ($3.3) million in Q2 2014, compared to ($3.1) million in the same period last year. For the YTD period, adjusted EBITDA was ($6.1) million compared to ($6.0) million in the same period last year. The change in adjusted EBITDA loss was due to higher operating expenses partly offset by increased gross profit.

Net Loss

Net loss in Q2 2014 was $3.7 million, or $0.07 per common share (basic and fully diluted), compared to a net loss of $3.6 million, or $0.07 per common share (basic and fully diluted), for same period last year. For the YTD period, net loss was $7.1 million, or $0.12 per share (basic and fully diluted) compared to $7.2 million or $0.13 per share (basic and fully diluted) in the prior period.

Liquidity

Working capital was $80.6 million at June 30, 2014 compared to working capital of $87.3 million at December 31, 2013. The decrease was principally due to cash utilized in operating and investing activities. 

Notice of Conference Call

EcoSynthetix will host a conference call on Friday, August 1, 2014, at 8:30 AM ET to discuss its financial results.  John van Leeuwen, 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. 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 is not a recognized measure under IFRS and should not be considered as an alternative to operating income or net income as a measure of operating results or an alternative to cash flows as a measure of liquidity. Adjusted EBITDA is defined as consolidated net income (loss) before interest, income taxes, depreciation, amortization and other non-cash expenses deducted in determining consolidated net income (loss) before interest, income taxes, depreciation, amortization, other non-cash expenses and charges which include the movement in the unrealized gains and losses on the Company's redeemable preferred shares and warrants classified as financial liabilities prior to the initial public offering and share based compensation expense.

The following table reconciles net loss to Adjusted EBITDA for Q2 2014 and Q2 2013:

About EcoSynthetix Inc. (www.ecosynthetix.com)
EcoSynthetix Inc. is a renewable chemicals company specializing in bio-based products that can be used as inputs in industrial manufacturing for a wide range of consumer products. The Company's products offer a reduced carbon footprint and are marketed primarily on the basis of lower cost, stable pricing and equal or superior performance. EcoSynthetix's lead product, EcoSphere^® biolatex^® binders, is used commercially by a number of the global top 20 manufacturers in the coated paper and paperboard industry.

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. 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 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 31, 2014. 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.

SOURCE EcoSynthetix Inc.