EcoSynthetix Reports Second Quarter 2019 Results

BURLINGTON, ON, July 31, 2019  /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 (Q2 2019) and six months (YTD 2019) ended June 30, 2019. Financial references are in U.S. dollars unless otherwise indicated.

Highlights

• Recorded net sales of $5.1 million in Q2 2019, compared to $5.8 million in Q2 2018
• Net loss of $0.2 million in Q2 2019, an improvement of 72%, compared to a loss of $0.7 million in Q2 2018
• Adjusted EBITDA was $26.0 thousand in Q2 2019, an improvement of 105%, compared to a loss of $0.5 million in Q2 2018
• Cash provided by (used in) operating activities was $0.2 million in Q2 2019, compared to $(0.3) million in Q2 2018, an improvement of $0.5 million or 167%
• During Q2 2019 the Company's biopolymer products for the personal care space were launched together with a leading player in the personal care market under exclusive marketing and development agreements
• Maintained a strong balance sheet with cash and short-term investments of $44.6 million as at June 30, 2019

"It was a milestone quarter for the business as we generated positive cash flow and profitable Adjusted EBITDA. In addition, we generated positive cash flow from operations on a trailing twelve month basis for the first time. This achievement is another meaningful step toward delivering on our commitment of profitability for 2019," said Jeff MacDonald, CEO of EcoSynthetix. "Our bottom-line continues to improve as a result of our cost discipline despite the impact on our top-line of ongoing challenging dynamics in the paper market. We believe our primary growth market in the near term remains wood composites. The marketing efforts of a leading global wood composites manufacturer and its launch of a No-Added Formaldehyde particle board is receiving positive feedback in the market. Its NAF solution clearly fills a need for consumers and retailers in search of a sustainable and healthy alternative to formaldehyde-based products."

Financial Summary

Net Sales

Net sales were $5.1 million and $9.5 million for Q2 2019 and YTD 2019, respectively, compared to $5.8 million and $11.2 million in the corresponding periods in 2018. The decreases were primarily due to lower sales volume as a result of continued challenging market dynamics within the paper market which included the loss of business from a European paperboard mill in the first quarter of 2019 which reduced sales $0.4 million and $0.7 million in the comparative periods, respectively.

Gross Profit

Gross profit was $1.0 million and $2.0 million for Q2 2019 and YTD 2019, compared to $1.2 million and $2.2 million in the corresponding periods in 2018. The decrease of $0.2 million in both periods was primarily due to lower sales volume.

Gross profit as a percentage of sales was 20.1% and 21.1% for Q2 2019 and YTD 2019, respectively, compared to 20.5% and 19.9% in the corresponding periods in 2018. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 24.8% and 25.1% for Q2 2019 and YTD 2019, respectively, compared to 23.9% and 23.6% for the corresponding periods in 2018. The increases in gross profit as a percentage of sales adjusted for manufacturing depreciation in the quarter were primarily due to lower manufacturing costs partly offset by lower average selling prices.

Selling, General and Administrative

Selling, general and administrative expenses (SG&A) were $1.1 million and $2.3 million for Q2 2019 and YTD 2019, respectively, compared to $1.6 million and $3.1 million for the corresponding periods in 2018. The decreases in both periods was primarily due to lower people related costs, a decrease in foreign exchange losses and lower discretionary expenses.  The decrease in people related costs and discretionary spending was primarily due to lower headcount. The decrease in foreign exchange losses was primarily due to the translation of cash balances denominated in Canadian dollars and foreign exchange rate fluctuations between the Canadian dollar and U.S. dollar.

SG&A includes share-based compensation expense, which was $0.1 million and $0.3 million for Q2 2019 and YTD 2019, respectively, comparable to the same periods in 2018.  SG&A excluding share-based compensation expense was $1.0 million and $2.0 million in Q2 2019 and YTD 2019, respectively, compared to $1.5 million and $2.7 million for the corresponding periods in 2018.

Research and Development

Research and development (R&D) costs were $0.4 million and $0.8 million for Q2 2019 and YTD 2019, respectively, compared to $0.5 million and $1.3 million for the corresponding periods in 2018.  The decrease in both periods was primarily due to lower people related expenses, the recognition of government grants and a decrease in rent expense. Rent expenses was $0.1 million lower in YTD 2019 due to the adoption of IFRS 16, Leases, which was implemented using the modified retrospective method on January 1, 2019. 

Depreciation expense included in R&D was $0.1 million and $0.3 million for Q2 2019 and YTD 2019, respectively, compared to $0.1 million and $0.2 million in the corresponding periods in 2018. R&D excluding depreciation expense was $0.2 million and $0.5 million for Q2 2019 and YTD 2019, respectively, compared to $0.4 million and $1.1 million for the corresponding periods in 2018.

Termination benefits

Termination benefits were nil for both Q2 2019 and YTD 2019, compared to nil and $0.2 million in corresponding periods in 2018.  Termination benefits recorded in 2018 related to a cost reduction plan implemented in the first quarter of 2018.

Adjusted EBITDA¹

Adjusted EBITDA was $26.0 thousand for Q2 2019, compared to an Adjusted EBITDA loss of $0.5 million in the corresponding period in 2018. Adjusted EBITDA loss was $0.1 million for YTD 2019, compared to $1.4 million for the corresponding period in 2018. The improvement of 105% and 91% for the respective periods was primarily due to lower operating expenses. 

Net Loss 

Net loss was $0.2 million, or nil per common share, and $0.6 million, or $0.01 per common share, for Q2 2019 and YTD 2019, respectively, compared to $0.7 million, or $0.01 per common share, and $1.9 million, or $0.03 per common share, for the corresponding periods in 2018. The improvements were principally due to lower operating expenses, partly offset by lower gross profit.

Liquidity

Cash on hand and short-term investments were $44.6 million as at June 30, 2019, compared to $44.8 million as at December 31, 2018. Cash on hand at June 30, 2019, excluding the $35.4 million in short-term investments, was $9.2 million. During the six months ended June 30, 2019, the Company repurchased and cancelled 42,000 common shares for total consideration of $65,763.

Notice of Conference Call

EcoSynthetix will host a conference call Thursday, August 1, 2019 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 six months ended June 30, 2019 and June 30, 2018:

About EcoSynthetix Inc. (www.ecosynthetix.com)
EcoSynthetix offers a range of sustainable engineered biopolymers that allow customers to reduce their use of harmful materials, such as formaldehyde and styrene-based chemicals. The Company's flagship products, DuraBind™ and EcoSphere®, are used to manufacture wood composites, paper and packaging, and enable performance improvements, economic benefits and sustainability. 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 plans to execute its commercial strategy, convert late-stage industrial trial prospects into customers and expand the number of lines and the volumes at existing customers, and other statements regarding the Company's plans and expectations in 2019. 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 4, 2019. 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.

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