EcoSynthetix Reports 2023 Fourth Quarter and Year End Results

BURLINGTON, ON, Feb. 27, 2024 /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 (Q4 2023) and twelve months (FY 2023) ended December 31, 2023. Financial references are in U.S. dollars unless otherwise indicated.

Highlights
(Comparison periods in each case are the three months ended December 31, 2022)

• Recorded net sales of $2.8 million, down 49%, compared to the prior period.
• Recorded an Adjusted EBITDA¹ loss of $1.0 million, an increase of $0.6 million from the prior period.
• Shipped $0.3 million of SurfLock™ for an extended trial in pulp applications with a leading paper and pulp producer, subsequent to the end of the quarter.
• Subsequent to the end of the quarter, a backward integrated producer of particleboard and a leading international retailer, identified the use of bio-based glues in one of its particleboard factories in 2023 as a milestone that will impact its future carbon footprint. Today, 5% of the climate footprint of the total value chain of this leading international retailer is connected to the use of glue in its board materials.
• Commissioned the new manufacturing line in Burlington, Ontario, subsequent to the end of the quarter. By internalizing production, the Company improves its ability to launch new products and reduce supply chain management risk.
• Received the Platinum designation for the third consecutive year from EcoVadis, a globally recognized agency for business sustainability ratings of supply chains, by scoring within the top 1% of the 125,000 companies rated.
• Maintained a strong balance sheet with cash and term deposits of $33.3 million as at December 31, 2023.
• Purchased and cancelled 276,500 and 967,900 common shares in Q4 2023 and FY 2023, respectively, under the normal course issuer bid for total consideration of $0.7 million and $2.4 million.

"The steps we have taken and the progress we have made across the wood composites, the paperboard, pulp and tissue and the personal care end markets position us for a stronger 2024 and sustainable, long-term growth." said Jeff MacDonald, CEO of EcoSynthetix. "Our revenue base is more diversified today than ever before as the three targeted end markets we address constituted the majority of our sales in 2023. The legacy graphic paper market, and the prolonged macro demand challenges manufacturers face in that vertical, have made it relatively immaterial to our go forward sales volumes. However, the relationships we've established in that end market are proving beneficial as we go to market with SurfLock™ strength aids. We are seeing strong trial results across multiple prospects, including large global pulp manufacturers. Our key strategic account in wood composites, which is an international retailer that is backward integrated into wood panel manufacturing, continues to raise awareness across its supply chain of the need to move to bio-based glues which plays directly into the advantages offered by DuraBind™. We believe SurfLock™ and DuraBind™ will be the primary drivers of our top line growth in 2024 and beyond."  

Financial Summary

Net Sales

Net sales were $2.8 million and $12.7 million for Q4 2023 and FY 2023, respectively, compared to $5.6 million and $19.0 million for the corresponding periods in 2022. The 49% decrease in the quarterly period was due to lower volumes, which decreased sales $2.9 million, or 51%, partly offset by a higher average selling price which increased sales $0.1 million or 2%. The 33% decrease in the annual period was due to lower volumes, which decreased sales $7.6 million or 40%, partly offset by a higher average selling price which increased sales $1.2 million or 7%. The lower volumes in both periods were primarily due to continued demand deterioration and customer inventory de-stocking in the legacy graphic paper market. The higher average selling price in the quarterly period was primarily due to product mix while in the annual period it was primarily due to product mix as well as the offsetting of inflationary pressure with price increases.  

Gross Profit

Gross profit was $0.5 million and $2.8 million for Q4 2023 and FY 2023, respectively, compared to $0.9 million and $4.2 million for the corresponding periods in 2022. The decrease in the quarterly period was primarily due to lower volumes. The change in the annual period was primarily due to lower volumes and higher costs of manufacturing, partially offset by a higher average selling price.

Gross profit as a percentage of sales was 16.3% and 22.0% for Q4 2023 and FY 2023, respectively, and was comparable to 16.4% and 21.8% for the corresponding periods in 2022. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 21.9% and 28.9% for Q4 2023 and FY 2023, respectively, compared to 21.4% and 25.5% for the corresponding periods in 2022.  The improvement in the annual period was primarily due to a higher average selling price partly offset by higher costs of manufacturing.

Selling, General and Administrative

Selling, general and administrative expenses (SG&A) were $1.3 million and $5.0 million for Q4 2023 and FY 2023, respectively, which are both in line with $1.3 million and $5.1 million for the corresponding periods in 2022. The nominal change in the annual period was primarily due to changes in foreign exchange gains and losses and lower compensation expense related to share based awards, partly offset by $0.2 million asset relocation costs associated with the Company's manufacturing realignment strategy announced in early 2023.

Research and Development

Research and development (R&D) costs were $0.6 million and $2.3 million for Q4 2023 and FY 2023, respectively, compared to $0.6 million and $1.9 million in the corresponding periods in 2022. The change in the annual period was primarily due to an increase in new product scale up costs. R&D expense as a percentage of sales was 20% and 18% for Q4 2023 and FY 2023, respectively, compared to 10% in each of the corresponding periods in 2022. 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 $1.0 million and $2.5 million for Q4 2023 and YTD 2023, respectively, compared to $0.3 million and $0.9 million in the corresponding periods in 2022. The change in both periods was primarily due to lower gross profit and higher operating costs adjusted for non-cash items when compared to the prior period.

Net Loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Net loss was $0.6 million, or $0.01 per common share, and $2.8 million, or $0.05 per common share, for Q4 2023 and FY 2023, respectively, compared to $0.7 million, or $0.01 per common share, and $2.4 million, or $0.04 per common share, for the corresponding periods in 2022. The change in the quarterly period was primarily due to a gain on the disposal of PP&E for $0.5 million and $0.1 million in higher net interest income earned during the period, offset by an increase in loss from operations of $0.5 million. The change in the annual period was primarily due to a $1.6 million higher loss from operations offset by an increase of $0.6 million in net interest income earned during the period as well as the gain on disposal of PP&E of $0.5 million. The higher net interest income during both periods is due to an increase in interest rates on cash and term deposits.

Liquidity

Cash on hand and term deposits were $33.3 million as at December 31, 2023 compared to $36.0 million as at December 31, 2022. The $2.7 million change was primarily due to $2.4 million for the purchase of shares through the normal course issuer bid ("NCIB") and $1.6 million of cash used to purchase property, plant, and equipment primarily related to the Company's manufacturing capacity realignment strategy, partially offset by $0.3 million cash-flow from operations. The Company purchased and cancelled 276,500 and 967,900 common shares under the NCIB during Q4 2023 and FY 2023, respectively.

Notice of Conference Call

EcoSynthetix will host a conference call Wednesday, February 28, 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 instantly join the call by phone, by following the URL https://emportal.ink/3SregmW to easily register and be connected into the conference call automatically or the conventional method by dialling [phone] or [phone] with the conference identification of 13266514. 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 or https://app.webinar.net/OynYz5Z2ZkX. 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, gain or loss on disposals of property, plant and equipment and 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 and twelve months ended December 31, 2023, and December 31, 2022:

	Three months ended December 31, 2023	Three months ended December 31, 2022	Twelve months ended December 31, 2023	Twelve months ended December 31, 2022
Net Loss	(584,624)	(650,674)	(2,821,047)	(2,375,244)
Depreciation	247,690	396,293	1,268,985	1,137,465
Share-based Compensation	224,579	174,156	715,887	883,457
Gain on disposal of property, plant and equipment	(511,038)	-	(511,038)	-
Interest Income	(345,699)	(256,083)	(1,175,590)	(528,037)
Adjusted EBITDA loss	(969,092)	(336,308)	(2,522,803)	(882,359)

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™, Surflock™, Bioform™, and EcoSphere®, are used to manufacture wood composites, personal care, paper, tissue and packaging products, 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 2023. 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 27, 2024. 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.
Consolidated Balance Sheets
(expressed in US dollars)
	Decemebr 31, 2023	December 31, 2022
Assets
Current assets
Cash	4,915,445	4,808,606
Term deposits	28,366,765	21,054,812
Accounts receivable	1,549,443	2,930,386
Inventory	3,642,923	5,317,367
Prepaid expenses	91,917	85,131
	38,566,493	34,196,302
Non-current assets
Term deposits	-	10,138,542
Property, plant and equipment	4,268,820	3,859,413
	4,268,820	13,997,955
Total assets	42,835,313	48,194,257
Liabilities
Current liabilities
Trade accounts payables and accrued liabilities	1,607,140	2,595,353
Non-current liabilities
Lease liability	258,278	543,639
Total liabilities	1,865,418	3,138,992
Shareholders' Equity
Common shares	490,263,781	491,700,059
Contributed surplus	10,253,411	10,081,456
Accumulated deficit	(459,547,297)	(456,726,250)
Total shareholders' equity	40,969,895	45,055,265
Total liabilities and shareholders' equity	42,835,313	48,194,257

EcoSynthetix Inc.
Consolidated Statements of Operations and Comprehensive Loss
For the three and twelve months ended December 31, 2023 and December 31, 2022
(expressed in US dollars)
	Three months ended December 31,			Twelve months ended Decemebr 31,
	2023	2022		2023	2022
Net sales	2,843,437	5,609,083		12,659,623	19,034,526
Cost of sales	2,379,389	4,687,363		9,877,792	14,880,420
Gross profit on sales	464,048	921,720		2,781,831	4,154,106
Expenses
Selling, general and administrative	1,347,909	1,272,605		4,986,580	5,135,247
Research and development	557,500	555,872		2,302,926	1,922,140
	1,905,409	1,828,477		7,289,506	7,057,387
Loss from operations	(1,441,361)	(906,757)		(4,507,675)	(2,903,281)
Net interest income	345,699	256,083		1,175,590	528,037
Gain on disposal of property, plant and equipment	511,038	-		511,038	-
Net loss and comprehensive loss	(584,624)	(650,674)		(2,821,047)	(2,375,244)
Basic and diluted loss per common share	(0.01)	(0.01)		(0.05)	(0.04)
Weighted average number of common shares outstanding	58,635,640	58,994,283		58,926,302	58,898,673

EcoSynthetix Inc.
Interim Consolidated Statements of Cash Flows
For the three and twelve months ended December 31, 2023 and December 31, 2022
(expressed in US dollars)
	Three months ended December 31,			Twelve months ended Decemebr 31,
	2023	2022		2023	2022
Cash provided by (used in)
Operating activities
Net loss and comprehensive loss	(584,624)	(650,674)		(2,821,047)	(2,375,244)
Items not affecting cash
Depreciation	247,690	396,293		1,268,985	1,137,465
Share-based compensation	224,579	174,156		715,887	883,457
Other	(107,101)	(283,370)		(78,581)	(205,838)
Gain on disposal of property, plant and equipment	(511,038)	-		(511,038)	-
Changes in non-cash working capital
Accounts receivable	(5,504)	(371,813)		1,380,943	(1,011,320)
Inventory	398,662	(562,763)		1,669,733	(3,148,809)
Prepaid expenses	75,022	51,387		(6,786)	6,799
Trade accounts payables and accrued liabilities	(409,241)	152,616		(1,048,296)	130,577
Interest on term deposits
Interest received on term deposits	-	77,069		743,536	77,069
Accrued interest on term deposits	(304,845)	(207,550)		(996,347)	(390,114)
	(976,400)	(1,224,649)		316,989	(4,895,958)
Investing activities
Purchase of property, plant and equipment	(950,024)	(39,569)		(1,626,468)	(273,030)
Proceeds on disposal of property, plant and equipment	511,038	-		511,038	-
Receipts on mature term deposits	-	5,000,000		27,093,884	5,000,000
Purchase of term deposits	-	(8,380,309)		(23,982,840)	(35,880,309)
	(438,986)	(3,419,878)		1,995,614	(31,153,339)
Financing activities
Payments made on lease liability	(73,402)	(63,486)		(287,921)	(263,620)
Common shares repurchased	(734,131)	(778,820)		(2,411,337)	(2,223,405)
Exercise of common share options	404,260	836,199		431,127	972,431
	(403,273)	(6,107)		(2,268,131)	(1,514,594)
Effect of exchange rate changes on cash	119,032	276,921		62,367	145,681
Change in cash during the period	(1,699,627)	(4,373,713)		106,839	(37,418,210)
Cash - Beginning of period	6,615,072	9,182,319		4,808,606	42,226,816
Cash - End of period	4,915,445	4,808,606		4,915,445	4,808,606

SOURCE EcoSynthetix Inc.

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