EcoSynthetix Reports First Quarter 2015 Results

- Company provides progress update on growth plan for 2015 -

BURLINGTON, ON, May 4, 2015 /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 results for the three months ended March 31, 2015. Financial references are in U.S. dollars unless otherwise indicated.

Q1 2015 Highlights

• Achieved net sales of $4.2 million for the first quarter of 2015 compared to $5.0 million for the same period
  last year;
• Appointed Jeff MacDonald as CEO, following his interim role in the same position, to lead the Company's disciplined growth plan and return the business to its growth trajectory;
• Reduced the total workforce by 20% in order to align and strengthen the Company's focus and resources on high-priority projects that could generate significant future revenue;
• Secured a new contract for EcoSphere with a small paper mill in Europe, an indication that the Company's bio-solution maintains its value proposition, despite challenging market conditions; and,
• Reported cash on hand of $64.6 million as at the end of March 31, 2015.

"With our strategic growth plan in place, our focus throughout 2015 will be on commercializing our proven bio-based solutions in the paper and wood composites industries," stated Jeff MacDonald, CEO of EcoSynthetix. "Over the last year, amid challenging market conditions, we continued to deliver positive returns for our customers in the paper industry.  We intend to expand our presence in paper this year by commercializing new bio-based solutions for targeted segments of the value chain. In addition, we remain firmly committed to diversifying our portfolio into wood composites, where we see the potential for growth."

Outlook

The Company's renewed attention to product innovation, market diversification and disciplined organizational growth – coupled with the first signs of improving macro-economic conditions – creates a strong foundation for EcoSynthetix in 2015. The Company intends to build its business going forward by focusing on the following three key areas:    

1. Defined product pipeline

EcoSynthetix has allocated development resources to select projects, in a targeted, disciplined manner, in order to expand its bio-based product portfolio. The Company is focused on opportunities that demonstrate both technical feasibility and strong commercial value in the short- and long-term.

In addition to its existing bio-solutions for the paper coating and wood composites space, EcoSphere and DuraBind, respectively, EcoSynthetix is developing a defined number of additional products using its proprietary chemistries and manufacturing processes.

The Company will also continue to invest in a small number of longer-term development opportunities, including those in conjunction with its university partners.

2. Diversified business verticals

EcoSynthetix is focused on expanding its presence in paper while also commercializing its products in new markets, including building products.

EcoSynthetix has identified applications for its bio-based solutions across targeted segments of the paper value chain. The Company believes that it can offer a strong value proposition to customers in these markets and meaningfully expand its foothold in the industry.

The Company continues to run advanced-stage, industrial-scale trials of its DuraBind solution with multiple wood composite accounts. These trials, which have moved to downstream operations including board pressing, cutting and laminating, are a strong indication that the Company remains on track for commercial success in the near-term.

3. Disciplined organizational growth

EcoSynthetix right-sized its organization in early 2015 with the reduction of 20% of its total workforce. The decision to redeploy and scale-back resources has allowed the Company to focus its financial and human capital on high-priority projects that can create meaningful revenue in the short-term.  

Going forward, prudent resource allocation will be closely tied to the Company's innovation engine and sales cycle; this approach will ensure that EcoSynthetix remains product and bottom-line driven. 

Financial Summary

Net Sales

Net sales for the three months ended March 31, 2015 were $4.2 million compared to $5.0 million in the same period last year, a decrease of $0.8 million or 17%.  The decrease in sales was due to lower sales volume of $0.5 million, or 10% of the total change in sales, primarily due to the announced FutureMark Paper mill closure last year.  Continuing unfavourable macro market conditions resulted in a lower average selling price which negatively impacted sales by $0.3 million or 7% of the total change in sales. This downward pressure was due to SB latex prices, which trade in parallel to crude oil prices, continuing to trade well below its historical average.

Gross Profit

Gross profit for the three months ended March 31, 2015 was $0.6 million compared to $1.0 million in the same period last year, a decrease of $0.4 million or 41%.  Gross profit as a percentage of revenue decreased from 19.7% to 13.9% during the same period.  Gross profit adjusted for manufacturing depreciation as a percentage of sales decreased from 25.7% to 18.5%.  The decrease was primarily due to lower average selling prices.

Selling, General and Administrative
(Excludes share-based compensation, depreciation and amortization, foreign exchange loss or gain and provision for termination benefits)

Selling, general and administrative expenses were $2.0 million for the three months ended March 31, 2015 compared to $2.6 million in the same period last year, a decrease of $0.7 million or 26%.  The decrease was principally due to lower salaries & benefits and discretionary spending which decreased $0.5 million and $0.2 million, respectively.  The decrease in salaries and benefits was primarily due to a workforce reduction during the current quarter and the impact of a weaker Canadian dollar versus U.S. dollar.

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

Research and development costs for the three months ended March 31, 2015 were $0.8 million compared to $1.5 million in the same period last year, a decrease of $0.7 million or 48%.  The decrease was primarily due to an increase of $0.3 million in recognized government grants compared to last year.  The Company recognized $0.4 million of government grants during the current quarter, compared to $0.1 million recognized in the same period last year, associated with funding from the Bioindustrial Innovation Canada (BIC), which was announced in September 2014.  In addition, research and development costs were lower due to greater focus on high priority projects that can create meaningful revenue and the favourable impact of a weaker Canadian dollar versus U.S. dollar.

Termination benefits

During the first quarter of fiscal 2015, the Company recognized $1.2 million in termination benefits as a result of a workforce reduction of approximately 20% and the termination of employment with Mr. John van Leeuwen, effective May 1, 2015.  On March 19, 2015, the Company announced that Interim Chief Executive Officer, Mr. Jeff MacDonald, had been appointed Chief Executive Officer of the Company replacing Mr. John van Leeuwen.  As a result of this termination of employment, Mr. van Leeuwen is entitled to an aggregate of $0.9 million, representing a 24 month severance period, inclusive of all salary, perquisites, allowances, statutory entitlements and bonus accounts.  Accordingly, the Company has recorded a $0.9 million provision for termination benefits during the current quarter.   Mr. van Leeuwen is also entitled to a maximum of 24 months of severance related to the value of long-term incentives during this period.  The Company has determined that no additional amounts are owed with respect to these long-term incentives as the associated performance conditions have not been met.  Accordingly, the Company ascribes no value to the long-term incentives for the 24 month severance period.   If the value of the long-term incentives is disputed, the Company's potential exposure is estimated to range from nil to $0.7 million.

Foreign currency exchange loss

Foreign currency exchange losses incurred during the three months ended March 31, 2015 were $0.7 million compared to nil in the same period last year.  The increase in foreign currency exchange losses were primarily due to unrealized translation losses of $0.5 million resulting from the revaluation of cash balances denominated in Canadian dollars at March 31, 2015. The Canadian dollar month end spot rate weakened from US$1.00 = C$1.16 at December 31, 2014 to US$1.00 = C$1.27 at March 31, 2015.      

Adjusted EBITDA¹

Adjusted EBITDA loss for the three months ended March 31, 2015 was $3.8 million compared to a loss of $2.8 million in the same period last year, an increased loss of $1.0 million or 35%.  Adjusting for the termination benefits and unrealized foreign exchange translation losses recognized during the quarter, Adjusted EBITDA loss for the current period would be $2.1 million compared to a loss of $2.8 million in the same period last year, a decrease of $0.8 million or 27%.

Net Loss

Net loss for the three months ended March 31, 2015 was $4.1 million, or $0.07 per common share, compared to $3.3 million, or $0.06 per common share in the same period last year, an increase of $0.8 million or 24%.  The increase was due to an increase in loss from operations.  Adjusting for the termination benefits recognized and unrealized foreign exchange translation losses during the current quarter, the net loss was $2.4 million or $0.04 per common share compared to $3.3 million or $0.06 per common share last year, a decrease of $0.9 million or 29%.

Liquidity

Cash on hand was $64.6 million at March 31, 2015, compared to $67.2 million at December 31, 2014. The decrease was principally due to cash utilized in operating and investing activities.   

Notice of Conference Call

EcoSynthetix will host a conference call on Tuesday, May 5, 2015, 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 dialing (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 for the three months ended March 31, 2015 and March 31, 2014:

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. The forward-looking statements in this Press Release include, but are not limited to, statements regarding the Company's expected product pipeline, plans to expand the Company's business into new markets, the Company's ability to achieve organizational efficiencies, and other statements regarding the Company's plans and expectations in 2015. 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 31, 2015. 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.