EcoSynthetix Reports 2023 Third Quarter Results

BURLINGTON, ON, Nov. 2, 2023 /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 (Q3 2023) and nine months (YTD 2023) ended September 30, 2023. Financial references are in U.S. dollars unless otherwise indicated.

Highlights
(Comparison periods in each case are the three months ended September 30, 2022)

• Recorded net sales of $3.8 million, down 24%, compared to the prior period
• Recorded an Adjusted EBITDA¹ loss of $0.2 million, in line with the prior period
• Maintained a strong balance sheet with cash and term deposits of $34.7 million as at September 30, 2023
• Purchased and cancelled 274,600 common shares in Q3 2023 under the normal course issuer bid for total consideration of $0.7 million
• Internalization of North American production capacity on schedule and budget with an anticipated startup by the end of 2023, which will improve the Company's ability to launch new products and reduce supply chain management risk
• Increased trial activity across each of the Company's end markets during the quarter and into the fourth quarter

"We are seeing improvements in both trial activity and feedstock that set us up for a stronger 2024. However, weak market conditions continued to impact our volumes in the third quarter, led by the ongoing deterioration in graphic paper demand," said Jeff MacDonald, CEO of EcoSynthetix. "We are seeing strong trial activity with multiple trials ongoing across each of our end markets, including wood composites, tissue, packaging and specialty paper. Our key wood composites account is expanding usage of our DuraBind™ resin. The trial activity in the tissue, packaging and pulp end market is also accelerating despite difficult macro conditions in that market. On the supply side, the constraints we experienced earlier in the year on feedstock availability have subsided. Feedstock pricing has also improved but remains elevated relative to an historical basis. While it has been a challenging 2023, we are seeing better momentum in the business and look forward to a return to growth in 2024."   

Financial Summary

Net Sales

Net sales were $3.8 million and $9.8 million for Q3 2023 and YTD 2023, respectively, compared to $5.0 million and $13.4 million for the corresponding periods in 2022. The 24% decrease in the quarterly period was primarily due to lower volumes which decreased sales $1.9 million or 38%, partially offset by a higher average selling price which increased sales $0.7 million or 14%. The 27% decrease in the YTD period was due to lower volumes which decreased sales $4.7 million or 35%, partially offset by a higher average selling price which increased sales $1.1 million or 8%. The lower volumes in both periods were primarily due to continued demand deterioration in the graphic paper market. The higher average selling price during both periods was due to the offsetting of inflationary pressures with price increases, and product mix.  

Gross Profit

Gross profit was $1.2 million and $2.3 million for Q3 2023 and YTD 2023, respectively, compared to $1.0 million and $3.2 million for the corresponding periods in 2022. The increase in the quarterly period was primarily due to higher average selling price, as a result of product mix, partially offset by lower volumes and higher costs of manufacturing. The change in the YTD period was primarily due to decreased sales volumes and higher costs of manufacturing, partially offset by a higher average selling price.

Gross profit as a percentage of sales was 30.3% and 23.6% for Q3 2023 and YTD 2023, respectively, compared to 20.6% and 24.1% for the corresponding periods in 2022. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 34.0% and 30.9% for Q3 2023 and YTD 2023, respectively, compared to 23.0% and 27.3% for the corresponding periods in 2022. The improvement is 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 $1.2 million and $3.6 million for Q3 2023 and YTD 2023, respectively, compared to $1.2 million and $3.9 million for the corresponding periods in 2022. SG&A expenses in the quarterly period were in line with the prior period.  The improvement in YTD period was primarily due to changes in foreign exchange gains and losses and lower compensation expense related to share based awards.

Research and Development

Research and development (R&D) costs were $0.5 million and $1.7 million for Q3 2023 and YTD 2023, respectively, compared to $0.4 million and $1.4 million in the corresponding periods in 2022. The quarterly period was in line with the prior year. The increase during the YTD period was primarily due to an increase in new product scale up costs. R&D expense as a percentage of sales was 14% and 18% for each of Q3 2023 and YTD 2023, respectively, compared to 9% and 10% in 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 $0.2 million and $1.6 million for Q3 2023 and YTD 2023, respectively, compared to $0.1 million and $0.5 million for the corresponding periods in 2022. The quarterly period was in line with the prior year. The change in the YTD period 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 $0.3 million, or nil per common share, and $2.2 million, or $0.04 per common share, for Q3 2023 and YTD 2023, respectively, compared to $0.4 million, or $0.01 per common share, and $1.7 million, or $0.03 per common share, for the corresponding periods in 2022. The change in the quarterly period was due to $0.2 million in higher net interest income earned during the period. The change in the YTD period was primarily due to a $1.1 million higher loss from operations partially offset by an increase of $0.6 million in net interest income. 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 $34.7 million as at September 30, 2023 compared to $36.0 million as at December 31, 2022. The $1.3 million change was primarily due to $1.7 million for the purchase of shares through the normal course issuer bid ("NCIB") and $0.7 million of cash used to purchase property, plant, and equipment primarily related to the Company's manufacturing capacity realignment strategy, partially offset by $1.3 million cash-flow from operations. The Company purchased and cancelled 274,600 and 691,400 common shares under the NCIB during Q3 2023 and YTD 2023, respectively.

Notice of Conference Call

EcoSynthetix will host a conference call Friday, November 3, 2023, at 9:00 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/48K8Eua 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 77021489. 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/kD2jx5bwrvZ. 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 and nine months ended September 30, 2023, and September 30, 2022:

	Three months ended September 30, 2023	Three months ended September 30, 2022	Nine months ended September 30, 2023	Nine months ended September 30, 2022
Net Loss	(267,947)	(388,850)	(2,236,423)	(1,724,570)
Depreciation	234,516	228,313	1,021,295	741,172
Share-based Compensation	165,084	186,034	491,308	709,301
Interest Income	(320,755)	(156,968)	(829,891)	(271,954)
Adjusted EBITDA loss	(189,102)	(131,471)	(1,553,711)	(546,051)

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 28, 2023. 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)
	September 30, 2023	December 31, 2022
Assets
Current assets
Cash	6,615,072	4,808,606
Term deposits	28,061,920	21,054,812
Accounts receivable	1,538,378	2,912,000
Inventory	4,049,962	5,317,367
Government grants receivable	5,561	18,386
Prepaid expenses	166,939	85,131
	40,437,832	34,196,302
Non-current assets
Term deposits	-	10,138,542
Property, plant and equipment	3,503,194	3,859,413
	3,503,194	13,997,955
Total assets	43,941,026	48,194,257
Liabilities
Current liabilities
Trade accounts payables and accrued liabilities	1,939,744	2,595,353
Non-current liabilities
Lease liability	341,471	543,639
Total liabilities	2,281,215	3,138,992
Shareholders' Equity
Common shares	490,062,192	491,700,059
Contributed surplus	10,560,292	10,081,456
Accumulated deficit	(458,962,673)	(456,726,250)
Total shareholders' equity	41,659,811	45,055,265
Total liabilities and shareholders' equity	43,941,026	48,194,257

EcoSynthetix Inc.
Interim Consolidated Statements of Operations and Comprehensive Loss
For the three and nine months ended September 30, 2023 and September 30, 2022
(expressed in US dollars)
	Three months ended September 30,			Nine months ended September 30,
	2023	2022		2023	2022
Net sales	3,800,564	5,019,650		9,816,186	13,425,443
Cost of sales	2,648,579	3,984,789		7,498,403	10,193,057
Gross profit on sales	1,151,985	1,034,861		2,317,783	3,232,386
Expenses
Selling, general and administrative	1,226,127	1,146,576		3,638,671	3,862,642
Research and development	514,560	434,103		1,745,426	1,366,268
	1,740,687	1,580,679		5,384,097	5,228,910
Loss from operations	(588,702)	(545,818)		(3,066,314)	(1,996,524)
Net interest income	320,755	156,968		829,891	271,954
Net loss and comprehensive loss	(267,947)	(388,850)		(2,236,423)	(1,724,570)
Basic and diluted loss per common share	(0.00)	(0.01)		(0.04)	(0.03)
Weighted average number of common shares outstanding	58,711,122	58,809,507		59,024,253	58,866,452

EcoSynthetix Inc.
Interim Consolidated Statements of Cash Flows
For the three and nine months ended September 30, 2023 and September 30, 2022
(expressed in US dollars)
	Three months ended September 30,			Nine months ended September 30,
	2023	2022		2023	2022
Cash provided by (used in)
Operating activities
Net loss and comprehensive loss	(267,947)	(388,850)		(2,236,423)	(1,724,570)
Items not affecting cash
Depreciation	234,516	228,313		1,021,295	741,172
Share-based compensation	165,084	186,034		491,308	709,301
Other	69,672	66,996		28,520	77,532
Changes in non-cash working capital
Accounts receivable	(314,112)	(830,624)		1,373,622	(621,740)
Inventory	(638,361)	(1,914,302)		1,271,071	(2,586,046)
Government grants receivable	102	(7,889)		12,825	(17,767)
Prepaid expenses	(306)	26,785		(81,808)	(44,588)
Trade accounts payables and accrued liabilities	769,268	622,350		(639,055)	(22,039)
Interest on term deposits
Interest received on term deposits	371,064	-		743,536	-
Accrued interest on term deposits	(261,305)	(76,043)		(691,502)	(182,564)
	127,675	(2,087,230)		1,293,389	(3,671,309)
Investing activities
Purchase of property, plant and equipment	(154,748)	(34,975)		(676,444)	(233,461)
Receipts on mature term deposits	13,416,140	-		27,093,884	-
Purchase of term deposits	(12,500,000)	(7,500,000)		(23,982,840)	(27,500,000)
	761,392	(7,534,975)		2,434,600	(27,733,461)
Financing activities
Payments made on lease liability	(73,158)	(68,499)		(214,519)	(200,134)
Common shares repurchased	(749,239)	(442,369)		(1,677,206)	(1,444,585)
Exercise of common share options	-	136,232		26,867	136,232
	(822,397)	(374,636)		(1,864,858)	(1,508,487)
Effect of exchange rate changes on cash	(92,965)	(113,692)		(56,665)	(131,240)
Change in cash during the period	(26,295)	(10,110,533)		1,806,466	(33,044,497)
Cash - Beginning of period	6,641,367	19,292,852		4,808,606	42,226,816
Cash - End of period	6,615,072	9,182,319		6,615,072	9,182,319

SOURCE EcoSynthetix Inc.

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