BURLINGTON, ON, Nov. 11, 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 and operational results for the three and nine months ended September 30, 2015. Financial references are in U.S. dollars unless otherwise indicated.

Q3 2015 Highlights

• Accelerated select wood-composite accounts and progressed to multi-shift industrial-scale trials - a key milestone towards commercialization of DuraBind;
• Reduced adjusted EBITDA loss by 56%, from $3.6 million in the third quarter of 2014 to $1.6 million in the current quarter, resulting in a marginal cash burn during the period;
• Maintained a strong balance sheet with cash on hand of $62.1 million as at September 30, 2015;
• Appointed new sales leadership and strengthened the wood-composites customer service team; and,
• The Company was awarded a number of Cradle to Cradle (C2C) certifications by the Cradle to Cradle Products Innovation Institute, a globally recognized certification in sustainability.

"We are encouraged with our progress in commercializing DuraBind, as reflected by our ability to secure multi-shift trials" stated Jeff MacDonald, CEO of EcoSynthetix.  "These trials require a substantial customer commitment in terms of people, time and money.  As such, we believe this development is a strong validation of DuraBind's value proposition in a market with significant growth prospects for the Company.  We remain confident of securing commercial contracts in the near-term.  Despite a fall in revenues related to softness in the paper coating industry, our focus on disciplined and targeted spending enabled us to record near zero-cash burn.  At the same time, we were able to allocate the appropriate resources to strengthen our strategic growth initiatives outside of paper coating."

Outlook

While market softness in the coated paper industry is anticipated to continue into the next few quarters, the Company's focus on product innovation, market diversification and disciplined organizational growth has created strengthening momentum in EcoSynthetix's commercial efforts beyond this sector.  Converting on these opportunities has the potential to more than offset the decline in sales to coated paper producers.  Additionally, the Company's strong organization, robust intellectual property and product portfolio, as well as its solid financial position, form a strong foundation on which to build sustainable growth.

1.       Defined product pipeline

EcoSynthetix has allocated development resources to select projects, in a targeted and 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 continues 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 offerings in new markets, including building products.

EcoSynthetix has identified applications for its bio-based solutions in targeted segments of the paper value chain where it can offer a strong value proposition. As such, the Company signed a marketing agreement in the previous quarter with a leading Asian specialty chemicals supplier, Amazon Papyrus, to market, sell and distribute EcoSphere biolatex in China. The relationship will allow the Company to develop its business in an important and growing market in the pulp and paper industry by leveraging the relationships and resources of an established, leading organization. The Company anticipates that building a strong presence in China will be beneficial as it looks to introduce other bio-based solutions across the paper value chain over the longer-term.  Although this is a new relationship that will take time to start delivering commercial results, both parties are committed to the development of opportunities.

Third party analysis has confirmed that the characteristics of DuraBind supports a strong value proposition.  This is further reinforced by the Company's ability to secure multi-shift trials with select accounts as clear validation of the commercial value created by using Durabind in the wood composites space, and provides 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 by redeploying resources to high-priority projects with meaningful revenue potential. Today, the majority of the Company's human and financial resources are allocated towards commercializing the DuraBind solution in the wood composites space.  Going forward, prudent resource allocation will be closely tied to the Company's innovation engine and sales cycle; this approach will ensure that EcoSynthetix returns to its expected growth trajectory. 

Financial Summary

Net Sales

Net sales for the three months ended September 30, 2015 were $3.3 million compared to $4.8 million in the same period last year, a decrease of $1.5 million or 31%. Of this decline, $1.1 million was attributable to lower sales volume which was primarily due to the closure of two paper mills since August 2014, as well as $0.4 million related to pricing pressure, resulting from competitive pricing dynamics.

Net sales for the nine months ended September 30, 2015 were $11.6 million compared to $14.4 million in same period last year, a decrease of $2.8 million, or 19%.  The decline in revenues was attributable to mill closures, pricing pressure and lower general demand due to market softness in coated paper.

Gross Profit

Gross profit for the three months ended September 30, 2015 remained stable at $0.5 million, as compared to $0.5 million for the same period last year, as the impact of pricing pressure and lower sales volume were offset by lower production costs and a $0.3 million charge related to the closure of a North American paper mill recorded in the third quarter of last year.  Gross Profit as a percentage of revenue increased from 10.2% to 14.6%.

Gross profit for the nine months ended September 30, 2015 was $1.8 million, compared to $2.4 million in the same period last year, a decrease of $0.7 million, or 28%.  Gross profit as a percentage of sales decreased from 16.9% to 15.2% during the same period. The decrease in gross profit was attributable mainly to pricing pressure and lower sales volume, partly offset by lower production costs and a $0.3 million charge recorded in the prior year. Gross profit as a percentage of sales, adjusted for manufacturing depreciation and the $0.3 million charge recognized last year, decreased from 24.8% in the prior year to 20.8% in the current period 

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 (SG&A) were $1.4 million for the three months ended September 30, 2015, compared to $2.9 million in the same period last year, a decrease of $1.6 million, or 54%. For the nine months ended September 30, 2015, SG&A expenses were $5.4 million, compared to $8.7 million in the same period last year, a decrease of $3.4 million, or 39%. The decrease in both periods was primarily due to lower salaries and benefits, lower bad debt expense and reduced discretionary spending. The reduction in salaries and benefits and discretionary spending was primarily attributable to the workforce reduction in the first quarter of fiscal 2015 and the favourable 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 (R&D) costs for the three months ended September 30, 2015 were $0.9 million compared to $1.2 million in the same period last year, a decrease of $0.4 million, or 29%. For the nine months ended September 30, 2015, R&D costs were $2.6 million compared to $3.9 million during the same period last year, a decrease of $1.3 million, or 33%.  The decrease during both periods was primarily due to lower salaries and benefits and lower discretionary costs due to the favourable impact of a weaker Canadian dollar versus U.S. dollar, as well as the recognition of $0.6 million (year-to-date) in government grants associated with funding from Bioindustrial Innovation Canada (BIC).

Foreign Currency Exchange Loss

For the three months ended September 30, 2015, foreign exchange losses were $0.1 million, which was comparable to the same period in fiscal 2014.  For the nine months ended September 30, 2015 foreign exchange losses were $0.6 million, as compared to $0.1 million for the same period last year, an increase of $0.5 million.  The increase in foreign exchange losses were primarily due to translation losses on cash balances denominated in Canadian dollars caused by the weakening of the Canadian dollar versus the U.S. dollar in the current year. 

Adjusted EBITDA

Adjusted EBITDA loss for the three months ended September 30, 2015 was $1.6 million, compared to $3.6 million in the same period last year, a decrease of $2.0 million, or 56%. Adjusted EBITDA loss for the nine months ended September 30, 2015 was a loss of $7.4 million, as compared to a loss of $9.7 million in the same period last year, a decrease of $2.3 million, or 24%. 

Net Loss

Net loss for the three months ended September 30, 2015 was $1.9 million, or $0.03 per common share, as compared to $4.0 million, or $0.07 per common share for the same period last year, a decrease of $2.1 million, or 51%. Net loss for the nine months ended September 30, 2015 was $8.5 million, or $0.15 per common share, as compared to $11.1 million, or $0.19 per common share last year, a decrease of $2.6 million or 23%. The decrease in both periods was primarily due to a decrease in loss from operations related to the Company's strict financial discipline and focused strategic resource allocation.

Liquidity

Having achieved its lowest use of cash for the quarter since the Company's IPO ($0.1 million), Cash on hand came in at $62.1 million as at September 30, 2015, compared to $67.2 million at December 31, 2014. The decrease was principally due to cash used in operating and investing activities.   

Notice of Conference Call

EcoSynthetix will host a conference call on Thursday, November 12, 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 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 for the three months ended September 30, 2015 and September 30, 2014:

About EcoSynthetix Inc. (www.ecosynthetix.com)

EcoSynthetix offers a range of engineered biopolymers that replace the non-renewable chemicals used to manufacture many products, such as paper and packaging, personal care products, insulation and wood composites. Our flagship products, EcoSphere® biolatex® and DuraBind^TM biopolymers, provide a sustainable alternative that reduces a customer's carbon footprint, decreases overall material costs and improves performance. The company is publicly traded on the Toronto Stock Exchange (T:ECO).  

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.