EcoSynthetix Reports Third Quarter 2016 Results

BURLINGTON, ON, Nov. 8, 2016 /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 months and nine months ended September 30, 2016. Financial references are in U.S. dollars unless otherwise indicated.

Q3 2016 Highlights

• Secured first commercial customer for DuraBind™, the SWISS KRONO GROUP, a top five global producer of wood composites with multiple production facilities. SWISS KRONO completed industrial-stage trials and is using DuraBind on one production line on an ongoing basis for its NAF (No Added Formaldehyde) engineered wood products.
• Advanced late-stage trials for DuraBind with multiple prospects in its wood composite pipeline.
• Secured a new contract for EcoSphere® with a leading paperboard mill in Europe, an indication that the product maintains its value proposition, despite challenging paper market conditions.
• Recorded $2.7 million in net sales in the paper market in Q3 2016.
• Maintained a strong balance sheet with cash and term deposits of $54.4 million as at September 30, 2016.

"Securing our first commercial customer for DuraBind was our key priority in 2016.  It is the first step in executing our broader commercial strategy to establish DuraBind as a leading No Added Formaldehyde wood composite binder. As retailers and manufacturers search for alternatives that reduce or eliminate formaldehyde from their engineered wood products our DuraBind product offers the performance and price to deliver value in the multi-billion dollar wood composite binder market," said Jeff MacDonald, CEO of EcoSynthetix. "DuraBind helps to overcome operating and cost challenges and allows customers to deliver a sustainable product that provides a healthy home and work environment. DuraBind is an effective NAF binder for the full range of engineered wood product applications, including orientated strand board (OSB), medium density fibre (MDF) board and particle board (PB). We continue to advance our pipeline of industrial-stage trials across multiple prospects. Our goal is to add more production lines and win new customers as we demonstrate the value of DuraBind."

Financial Summary

Net Sales

Net sales were $2.7 million and $8.6 million for the three months ended September 30, 2016 (Q3 2016) and the nine months ended September 30, 2016 (YTD 2016), respectively, primarily from sales of EcoSphere® biolatex® for the paper market. Net sales were $3.3 million and $11.6 million in the corresponding periods last year. The changes were primarily due to lower sales volumes as a result of unfavourable market conditions in the coated paper industry. Sales volume in the quarterly period were $0.3 million lower as a result of delayed customer shipments due to a transportation disruption which has been resolved subsequent to the quarter. Adjusted for this item, the $0.3 million change in net sales was a result of $0.1 million of lower volumes to existing accounts, $0.1 million due to the closure of a North American paper mill last year and $0.1 million due to lower average selling prices. In the YTD 2016 period, sales volume decreased by $1.9 million to existing commercial accounts and $0.8 million due to the closed mill, as well as, $0.3 million due to a lower average selling price as a result of unfavourable market pricing dynamics.   

Gross Profit

Gross profit was $0.4 million and $1.3 million for Q3 2016 and YTD 2016, respectively, compared to $0.5 million and $1.8 million in the corresponding periods last year. The changes were primarily due to lower volume and pricing pressure partly offset by lower manufacturing production costs.

Gross profit as a percentage of sales were 15.2% and 15.7% in Q3 2016 and YTD 2016, respectively, compared to 14.6% and 15.2% in the corresponding periods last year.  Gross profit as a percentage of sales adjusted for manufacturing depreciation were 21.3% and 22.2% for Q3 2016 and YTD 2016, respectively compared to 21.1% and 20.8% for the corresponding periods last year. The improvements were primarily due to lower manufacturing production costs, partly offset by pricing pressure. 

Selling, General and Administrative
(Excludes share-based compensation, depreciation and amortization, provision for termination benefits, impairment loss on PP&E and foreign exchange gains and losses)

Selling, general and administrative expenses (SG&A) were $1.2 million and $4.4 million in Q3 2016 and YTD 2016, respectively, compared to $1.4 million and $5.4 million in the corresponding periods last year. The decrease during both periods was primarily due to lower people related costs and lower discretionary spending. 

Research and Development
(Excludes share-based compensation, depreciation and amortization, provision for termination benefits, impairment loss on PP&E and foreign exchange gains and losses)

Research and development (R&D) costs were unchanged at $0.9 million in Q3 2016 compared to the same period last year. R&D costs were $3.1 million in YTD 2016, compared to $2.6 million in the same period last year. Increased investment in the Company's DuraBind program during Q3 2016 was offset by lower salary & benefits and an increase in government grants recognized during the period. The increase in YTD 2016 was primarily due to higher spending related to commercialization activities for DuraBind, partly offset by the favourable impact of a weaker Canadian dollar versus U.S. dollar.

Foreign Currency Exchange Gain (Loss)

Foreign exchange gain (loss) was nil and $0.1 million in Q3 2016 and YTD 2016, respectively, compared to ($0.1) million and $(0.6) million in the corresponding periods last year. The changes were primarily due to the translation of cash balances denominated in Canadian dollars and the performance of the Canadian dollar versus U.S. dollar.

Adjusted EBITDA

Adjusted EBITDA loss was unchanged at $1.6 million in Q3 2016 compared to the same period last year as lower operating expenses were offset by lower gross profit. Adjusted EBITDA loss was $5.9 million in YTD 2016, compared to $7.4 million in the same period last year. The improvement in the YTD 2016 period was principally due to lower operating expenses partly offset by lower gross profit.

Net Loss

Net loss was unchanged at $1.9 million, or $0.03 per common share, in Q3 2016 compared to the same period last year. Net loss was $6.9 million, or $0.12 per common share, in YTD 2016, compared to $8.5 million, or $0.15 per commons share, in the same period last year. The $1.6 million improvement in the YTD 2016 period was principally due to lower operating expenses of $1.8 million and higher interest income of $0.2 million partly offset by lower gross profit of $0.4 million.

Liquidity

Cash on hand and term deposits were $54.4 million as at September 30, 2016, compared to $60.7 million as at December 31, 2015. During the first quarter, the Company purchased a $15.0 million fixed term deposit maturing on January 8, 2018. Cash on hand at September 30, 2016, excluding the term deposit, was $39.3 million.

Notice of Conference Call

EcoSynthetix will host a conference call on Wednesday, November 9, 2016 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 loss for the three months and nine months ended September 30, 2016 and September 30, 2015:

About EcoSynthetix Inc. (www.ecosynthetix.com)

EcoSynthetix offers a range of engineered biopolymers that replace non-renewable chemicals used to manufacture many products, such as paper and packaging, and wood composites. The Company's flagship products, EcoSphere® biolatex® and DuraBind™ biopolymers, provide customers with a sustainable alternative that reduces the use of hazardous chemicals, improves performance and delivers economic benefits. 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 2016. 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 30, 2016. 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.