EcoSynthetix Reports 2013 Third Quarter Results

BURLINGTON, ON, Nov. 5, 2013 /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 nine months ended September 30, 2013. Financial references are in U.S. dollars unless otherwise indicated.

Third Quarter 2013 Highlights

• Net sales were $5.4 million for the three months ended September 30, 2013 (Q3 2013), compared to $5.9 million for the three months ended September 30, 2012 (Q3 2012)
• Won five new customers year-to-date (YTD) and eight new customers in the last twelve months (LTM)
• 25% growth in sales on a year-to-date basis
• Launched new products within the paper and paperboard market
• Accelerated the trials and testing on product development within the insulation and wood-based panel industries

"The opportunity for our EcoSphere biolatex binders remains as strong as ever," said John van Leeuwen, Chief Executive Officer of EcoSynthetix. "We are innovating in existing markets and trialing in new markets. We launched new products during the quarter with our paper and paperboard customers and we are accelerating the trials with our new product applications within the building materials industry."

Financial Summary

Net Sales

Net sales for the three months ended September 30, 2013 (Q3 2013) were $5.4 million compared to $5.9 million for the three months ended September 30, 2012 (Q3 2012), a change of $0.5 million. The change was due to lower sales volume in Asia Pacific of $2.0 million and Europe/Middle East/Africa (EMEA) of $0.1 million, partly offset by higher sales volume in North America and Latin America of $1.4 million and $0.2 million, respectively.

Net sales for the year-to-date (YTD) period were $17.1 million compared to $13.6 million in the same period last year, an increase of $3.4 million or 25%. The increase in net sales is principally due to a $3.4 million sales increase in North America, a $0.9 million sales increase in EMEA and a $0.5 million sales increase in Latin America, which were partly offset by a $1.4 million decrease in sales in Asia Pacific.

EcoSynthetix has won eight new customers since Q3 2012. Collectively, these new customers accounted for 16% of net sales during the quarter and on a YTD basis.  These eight customers accounted for a 14% and 20% increase in sales during the three and nine months ended September 30, 2013 compared to the same period last year, respectively.

Sales to existing customers represented a 22% decrease and a 5% increase during the three and nine months ended September 30, 2013 compared to the same periods last year, respectively.  The decrease in sales to existing customers during the third quarter of fiscal 2013 was a result of lower sales in Asia Pacific.  Sales decreased in Asia Pacific due to the timing of inventory purchases by a distributor in this region in addition to unfavorable market dynamics caused by the global over-supply of butadiene and the related drop in butadiene and SB latex prices.

Gross Profit

Gross profit was $0.8 million or 15.5% of sales in Q3 2013 compared to $1.3 million or 21.6% of sales in the same period last year. The change in gross profit was principally due to higher manufacturing production costs, lower sales volume, increased corn starch costs and lower selling prices.

For the YTD period, gross profit was $2.7 million or 15.9% of sales compared to $2.7 million or 19.6% of sales in the same period last year. Increases in sales volume were offset by increased corn starch costs, lower selling prices, higher manufacturing production costs and increased manufacturing depreciation. The change in gross profit as a percentage of sales was principally due to increased corn starch costs, lower selling prices and higher manufacturing production costs.

Gross profit as a percentage of sales, adjusted for manufacturing depreciation, was 20.4% and 20.8% for Q3 2013 and YTD, respectively, compared with 26.2% and 24.7% for the corresponding periods last year.

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 $2.8 million in Q3 2013 compared to $2.6 million in the same period last year. For the YTD period, SG&A costs were $8.7 million compared to $7.3 million for the same period last year. The change was principally due to increased headcount.

Research and Development

Research and development (R&D) costs were $1.4 million in Q3 2013 compared to $0.8 million for the same period last year. For the YTD period, R&D costs were $3.9 million compared to $2.9 million for the same period last year. R&D is a key focus of EcoSynthetix to enhance its bio-based material product portfolio and expand into new applications and markets. The increase in R&D expenses reflects the Company's ongoing investment in product development and innovation.

Adjusted EBITDA¹

Adjusted EBITDA was ($3.2) million in Q3 2013, compared to $(1.8) million in the same period last year. For the YTD period, adjusted EBITDA was ($9.2) million compared to ($6.8) million in the same period last year. The increase in adjusted EBITDA loss was primarily due to higher operating expenses including SG&A and R&D.

Net Loss

Net loss in Q3 2013 was $4.0 million, or $0.07 per common share (basic and fully diluted), compared to a net loss of $2.3 million, or $0.04 per common share (basic and fully diluted), for same period last year. For the YTD period, net loss was $11.1 million, or $0.20 per share (basic and fully diluted) compared to $8.0 million or $0.15 per share (basic and fully diluted) in the prior period.

Liquidity

Working capital was $90.5 million at September 30, 2013, compared to working capital of $100.2 million at December 31, 2012.  The change was principally due to cash utilized in operating and investing activities.

Notice of Conference Call

EcoSynthetix will host a conference call on Wednesday, November 6, 2013, 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 dialing [phone] or [phone]. 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, 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 Q3 2013 and Q3 2012:

		Three months ended
		September 30, 2013		September 30, 2012
Net loss		(3,960,546)		(2,324,278)
Depreciation and amortization		387,337		320,883
Share-based compensation		477,000		285,000
Interest Income		(90,675)		(85,727)
Adjusted EBITDA ^(1)		(3,186,884)		(1,804,122)

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 28, 2013. 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.

 

EcoSynthetix Inc.
Interim Consolidated Balance Sheet
(Expressed in U.S. dollars), unaudited
		As at September 30, 2013		As at December 31, 2012
Assets
Current assets
	Cash	83,908,774		93,260,296
	Accounts receivable	3,841,001		4,309,355
	Inventory	7,270,598		6,822,619
	Government grants receivable	180,949		184,118
	Prepaid expenses	354,041		154,492
		95,555,363		104,730,880
Non-current assets
Intangible assets		141,840		163,501
Property, plant and equipment		13,212,664		13,174,416
Total assets		108,909,867		118,068,797
Liabilities
Current liabilities
	Accounts payable and accrued liabilities	5,013,775		4,282,296
	Deferred government grant	-		226,920
		5,013,775		4,509,216
Shareholders' Equity
Common shares		492,557,906		492,065,820
Contributed surplus		7,804,503		6,831,354
Accumulated deficit		(396,466,317)		(385,337,593)
Total shareholders' equity		103,896,092		113,559,581
Total shareholders' equity and liabilities		108,909,867		118,068,797

 

EcoSynthetix Inc.
Interim Consolidated Statement of Operations and Loss
(Expressed in U.S. dollars, unless otherwise noted), unaudited
		Three months ended September 30,				Nine months ended September 30,
		2013		2012		2013		2012
Net sales		5,416,621		5,915,571		17,070,777		13,628,684
Cost of sales		4,579,748		4,635,044		14,357,296		10,963,579
Gross profit on sales		836,873		1,280,527		2,713,481		2,665,105
Expenses
	Selling, general and administrative	3,450,071		2,858,091		10,175,132		8,112,548
	Research and development	1,438,023		832,441		3,936,976		2,863,938
		4,888,094		3,690,532		14,112,108		10,976,486
Loss from operations		(4,051,221)		(2,410,005)		(11,398,627)		(8,311,381)
Interest income		90,675		85,727		269,903		275,003
Net loss and comprehensive loss		(3,960,546)		(2,324,278)		(11,128,724)		(8,036,378)
Basic and diluted loss per common share		(0.07)		(0.04)		(0.20)		(0.15)
Weighted average number of common shares outstanding		55,764,273		55,324,997		56,026,829		55,273,916

 

 

EcoSynthetix Inc.
Interim Consolidated Statements of Cash Flows
(Expressed in U.S. dollars), unaudited
		Three months ended September 30,				Nine months ended September 30,
		2013	2012			2013	2012
Cash provided by (used in)
Operating activities
Net loss and comprehensive loss		(3,960,546)	(2,324,278)			(11,128,724)	(8,036,378)
Items not affecting cash
	Depreciation and amortization	387,337	320,883			1,134,941	822,815
	Share-based compensation	477,000	285,000			1,093,979	702,104
Changes in non-cash working capital
	Accounts receivable	739,527	(1,695,334)			468,354	(1,349,326)
	Inventory	387,133	899,309			(329,435)	2,740,832
	Government grants receivable	(4,429)	188,579			3,169	201,468
	Prepaid expenses	34,993	(32,577)			(199,549)	(31,542)
	Accounts payable and accrued liabilities	1,309,383	474,414			1,189,479	(648,533)
	Deferred government grant	(82,918)	224,023			(226,920)	224,023
		(712,520)	(1,659,981)			(7,994,706)	(5,374,537)
Investing activities
Cash used for purchase of intangible assets, property, plant and equipment		(485,137)	(626,805)			(1,728,072)	(5,344,799)
Financing activities
Repurchase of common shares		-	(521,729)			-	(521,729)
Exercise of common share options		33,260	123,463			275,957	141,784
Exercise of warrants		95,299				95,299	-
		128,559	(398,266)			371,256	(379,945)
Change in cash during the period		(1,069,098)	(2,685,052)			(9,351,522)	(11,099,281)
Cash - Beginning of period		84,977,872	97,299,476			93,260,296	105,713,705
Cash - End of period		83,908,774	94,614,424			83,908,774	94,614,424

 

 

SOURCE: EcoSynthetix Inc.

EcoSynthetix Inc.
John van Leeuwen
Chief Executive Officer
Phone: [phone]
E-mail: [email protected]

Investor Relations
Ross Marshall
TMX Equicom
Phone: [phone] (Ext.238)
E-mail: [email protected]