EcoSynthetix Reports 2022 Second Quarter Results

BURLINGTON, ON, Aug 8, 2022 /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 2022) and six months (YTD 2022) ended June 30, 2022. Financial references are in U.S. dollars unless otherwise indicated.

Highlights 
(Comparison periods in each case are the three months ended June 30, 2021)

• Recorded net sales of $4.2 million in Q2 2022, down 15%, due to lower volumes of 43%, partly offset by higher average selling price of 28%
• Continued diversification of revenue mix as applications beyond traditional graphic paper represented a greater portion of revenue which supported an improved margin profile despite inflationary pressures
• The Company's personal care joint development partner, Dow Chemical Company, announced an exclusive engagement with EcoSynthetix targeting the hairstyling market with MaizeCare™ Polymers, a bio-based and biodegradable technology that provides unique and high-performance benefits
• Gross profit of $1.1 million, unchanged, enabled by the higher average selling price which offset a decline in sales volumes
• Recorded an Adjusted EBITDA¹ loss of $0.2 million in Q2 2022, unchanged from the prior period
• Purchased and cancelled 90,500 common shares in Q2 2022 under the normal course issuer bid for total consideration of $0.4 million
• Maintained a strong balance sheet with cash and term deposits of $39.4 million as at June 30, 2022
• Named one of the Best 50 Corporate Citizens in Canada by Corporate Knights, ranking 20^th overall in Corporate Knights' transparent, quantitative methodology that places equal emphasis on the ESG performance of a company's operations and the environmental impact of its core products

"Our diversification strategy into wood composites, personal care and wet-end paper strengthening aids made meaningful contributions to results in the quarter. We saw good progress across our key strategic wood composites account, the new wet-end paper application and in the MaizeCare offering during the quarter," said Jeff MacDonald, CEO of EcoSynthetix. "Sales volumes were impacted by challenging macro conditions which included supply chain and logistics constraints for raw materials, inflationary pressures and further deterioration of demand in the graphic paper market. The availability of raw materials and logistics constraints resulted in an estimated $0.5 million to $1 million impact to net sales in the quarter. While those constraints remain, we are seeing the first positive signals of a more balanced raw materials environment. The sustainability profile of our bio-based polymer technology, together with its compelling value and performance attributes are gaining greater interest across a diverse base of accounts which set the stage for long-term growth."     

Financial Summary

Net Sales

Net sales were $4.2 million and $8.4 million for Q2 2022 and YTD 2022, respectively, compared to $4.9 million and $8.6 million for the corresponding periods in 2021. The decreases were due to lower sales volumes partly offset by higher average selling price. The 15% decrease in the quarter was due to lower sales volumes of $2.1 million, or 43%, due to unfavorable market conditions in graphic paper and limited feedstock availability due to challenging supply chain conditions. This decline includes a $0.6 million headwind in the quarter related to the closure of a paper mill that was announced in the third quarter of 2021. These pressures were partially offset by higher selling price and improved product mix which increased sales $1.4 million, or 28%, as the Company was able to offset significant inflationary pressures with price increases.

Gross Profit

Gross profit was $1.1 million and $2.2 million for Q2 2022 and YTD 2022, respectively, compared to $1.1 million and $1.9 million for the corresponding periods in 2021. During both periods, a higher average selling price and an improved product mix was offset by decreases in sales volumes and higher manufacturing costs.

Gross profit as a percentage of sales was 26.8% and 26.1% for Q2 2022 and YTD 2022, respectively, compared to 22.5% and 21.6% for the corresponding periods in 2021. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 30.8% and 29.8% for Q2 2022 and YTD 2022, respectively, compared to 26.3% and 26.2% for the corresponding periods in 2021. The improvements in both periods were primarily due to a higher average selling price and an improved product mix partly offset by higher manufacturing costs.

Selling, General and Administrative

Selling, general and administrative expenses (SG&A) were $1.4 million and $2.7 million for Q2 2022 and YTD 2022, respectively, compared to $1.3 million and $2.5 million for the corresponding periods in 2021. The increase in SG&A during Q2 2022 was primarily due to higher operating costs of $0.3 million including lower payments received under the Canadian Emergency Wage Subsidy program (CEWS), foreign exchange loss and increased discretionary spend, which was partially offset by a reduction in the provision for variable compensation of $0.2 million.

Research and Development

Research and development (R&D) costs were $0.5 million and $0.9 million for Q2 2022 and YTD 2022, respectively, which were in line with $0.6 million and $0.9 million in the corresponding periods in 2021. R&D expense as a percentage of sales were 12% and 11% for Q2 2022 and YTD 2022, respectively, compared to 11% and 10% in the corresponding periods in 2021. The Company's R&D efforts continue to focus on further enhancing value for our existing products and expanding addressable opportunities.

Adjusted EBITDA¹

Adjusted EBITDA loss was $0.2 million and $0.4 million for Q2 2022 and YTD 2022, respectively, which was in line with $0.2 million and $0.5 million during the corresponding same periods in 2021. The improvements were due to higher gross profit in both periods partly offset by higher operating costs which resulted in negligible changes compared to the prior year periods.

Net Loss                     

Net loss was $0.7 million, or $0.01 per common share, and $1.3 million, or $0.02 per common share, for Q2 2022 and YTD 2022, respectively, compared to $0.7 million, or $0.01 per common share, and $1.5 million, or $0.03 per common share, for the corresponding periods in 2021. The change in the YTD period was primarily due to lower loss from operations and higher interest income.

Liquidity

Cash on hand and term deposits were $39.4 million as at June 30, 2022, compared to $42.2 million as at December 31, 2021. The Company purchased and cancelled 90,000 and 227,600 common shares under the normal course issuer bid during the Q2 2022 and YTD 2022 periods, respectively, for consideration of $0.4 million and $1.0 million.

Notice of Conference Call

EcoSynthetix will host a conference call Tuesday, August 9, 2022, 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 [phone] or [phone] with the conference identification of 9879897. 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, 2022 and June 30, 2021:

	Three months ended June 30, 2022	Three months ended June 30, 2021	Six months ended June 30, 2022	Six months ended June 30, 2021
Net Loss	(676,828)	(729,097)	(1,335,720)	(1,478,981)
Depreciation	280,307	338,417	512,859	698,543
Share-based Compensation	251,301	227,485	523,267	346,962
Interest Income	(82,499)	(15,669)	(114,986)	(41,610)
Adjusted EBITDA loss	(227,719)	(178,864)	(414,580)	(475,086)

About EcoSynthetix Inc. (www.ecosynthetix.com)

EcoSynthetix, a 2022 climate positive company, 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™, Bioform™, and EcoSphere®, are used to manufacture wood composites, personal care, and paper and packaging, and enable performance improvements, economic benefits and carbon footprint reduction. 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, deliver meaningful growth across all three product categories, convert high-value strategic prospects into customers, and other statements regarding the Company's plans and expectations in 2022. 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 February 24, 2022. 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 Sheets
(expressed in US dollars)
	June 30, 2022	December 31, 2021
Assets
Current assets
Cash	19,292,852	42,226,816
Term deposits	5,015,343	-
Accounts receivable	1,703,506	1,912,390
Inventory	2,768,728	2,073,800
Government grants receivable	16,554	6,676
Prepaid expenses	163,303	91,930
	28,960,286	46,311,612
Non-current assets
Term deposits	15,091,178	-
Property, plant and equipment	4,342,153	4,670,089
	19,433,331	4,670,089
Total assets	48,393,617	50,981,701
Liabilities
Current liabilities
Trade accounts payables and accrued liabilities	1,736,579	2,363,630
Non-current liabilities
Lease liability	673,681	820,045
Total liabilities	2,410,260	3,183,675
Shareholders' Equity
Common shares	491,458,321	492,297,041
Contributed surplus	10,211,762	9,851,991
Accumulated deficit	(455,686,726)	(454,351,006)
Total shareholders' equity	45,983,357	47,798,026
Total liabilities and shareholders' equity	48,393,617	50,981,701

EcoSynthetix Inc.
Interim Consolidated Statements of Operations and Comprehensive Loss
For the three and six months ended June 30, 2022 and 2021
(expressed in US dollars)
	Three months ended June 30,			Six months ended June 30,
	2022	2021		2022	2021
Net sales	4,167,838	4,897,107		8,405,793	8,570,554
Cost of sales	3,050,353	3,794,621		6,208,268	6,715,979
Gross profit on sales	1,117,485	1,102,486		2,197,525	1,854,575
Expenses
Selling, general and administrative	1,375,381	1,294,822		2,716,066	2,493,811
Research and development	501,431	552,430		932,165	881,355
	1,876,812	1,847,252		3,648,231	3,375,166
Loss from operations	(759,327)	(744,766)		(1,450,706)	(1,520,591)
Net interest income	82,499	15,669		114,986	41,610
Net loss and comprehensive loss	(676,828)	(729,097)		(1,335,720)	(1,478,981)
Basic and diluted loss per common share	(0.01)	(0.01)		(0.02)	(0.03)
Weighted average number of common shares outstanding	58,855,891	57,241,838		58,895,397	57,248,524

EcoSynthetix Inc.
Interim Consolidated Statements of Cash Flows
For the three and six months ended June 30, 2022 and 2021
(expressed in US dollars)
	Three months ended June 30,			Six months ended June 30,
	2022	2021		2022	2021
Cash provided by (used in)
Operating activities
Net loss and comprehensive loss	(676,828)	(729,097)		(1,335,720)	(1,478,981)
Items not affecting cash
Depreciation	280,307	338,417		512,859	698,543
Share-based compensation	251,301	227,485		523,267	346,962
Other	58,713	62,960		10,536	66,854
Changes in non-cash working capital
Accounts receivable	200,075	(12,573)		208,884	(206,897)
Inventory	134,242	(70,123)		(671,744)	(543,844)
Government grants receivable	(3,158)	71,161		(9,878)	68,288
Prepaid expenses	(116,448)	(62,709)		(71,373)	(35,186)
Trade accounts payables and accrued liabilities	9,738	(59,767)		(644,389)	873,415
Interest on term deposits
Interest received on term deposits	-	-		-	358,740
Accrued interest on term deposits	(60,584)	-		(106,521)	(14,165)
	77,358	(234,246)		(1,584,079)	133,729
Investing activities
Purchase of property, plant and equipment	(148,924)	(193,791)		(198,486)	(238,348)
Receipts on mature short-term investments	-	-		-	25,000,000
Purchase of term deposits	-	-		(20,000,000)	-
	(148,924)	(193,791)		(20,198,486)	24,761,652
Financing activities
Payments made on lease liability	(70,354)	(62,958)		(131,635)	(122,195)
Common shares repurchased	(388,603)	(207,898)		(1,002,216)	(397,893)
Exercise of common share options	-	28,118		-	220,093
	(458,957)	(242,738)		(1,133,851)	(299,995)
Effect of exchange rate changes on cash	(80,087)	(40,661)		(17,548)	(28,958)
Change in cash during the period	(610,610)	(711,436)		(22,933,964)	24,566,428
Cash - Beginning of period	19,903,462	41,915,025		42,226,816	16,637,161
Cash - End of period	19,292,852	41,203,589		19,292,852	41,203,589

SOURCE EcoSynthetix Inc.

Investor Relations, Ross Marshall, Phone: [phone], E-mail: [email protected]