EcoSynthetix Reports 2024 Third Quarter Results

BURLINGTON, ON, Nov. 4, 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 (Q3 2024) and nine months (YTD 2024) ended September 30, 2024. Financial references are in U.S. dollars unless otherwise indicated.

Highlights
(Comparison periods in each case are the three months ended September 30, 2023)

• Recorded net sales of $5.2 million, up 38%, compared to the prior period, enabled by 56% higher volumes from increased demand.
• Recorded an Adjusted EBITDA¹ of $0.4 million, an improvement of $0.6 million from the prior period.
• Experienced increased demand in the wood composites end market from higher usage at commercial mills.
• Successful extended trials continue in pulp applications with a leading international pulp manufacturer.
• Purchased and cancelled 178,300 common shares in Q3 2024 under the normal course issuer bid for total consideration of $0.6 million.
• Maintained a strong balance sheet with cash and term deposits of $33.5 million as at September 30, 2024.

"Our innovative biopolymers continue to gain traction in the market with a nearly 50% increase in demand in 2024 year-to-date, underpinning our strong top line growth and improvements in the bottom line," said Jeff MacDonald, CEO of EcoSynthetix. "Our key accounts and prospects remain highly engaged, with positive momentum across tissue, paperboard and pulp, wood composites and personal care. One of the leading global pulp producers continues its extended commercial trials with our strength aid, SurfLock™, with large scale trials continuing through the end of the year. Our strength aid offers material economic and performance benefits for producers of pulp and pulp-based products like tissue and packaging. Our no-added formaldehyde binders offer significant carbon reduction benefits in wood panel production to our key strategic account which is backward integrated with an international retailer. Our film forming polymers are helping our marketing and development partner, Dow, offer an all-natural label and performance benefits across new applications and customers in the personal care end market. The momentum we are building is a result of our success diversifying across these key end markets. We are engaged with the right partners, accounts, and prospects to continue this growth into 2025."         

Financial Summary

Net Sales

Net sales were $5.2 million and $13.1 million for Q3 2024 and YTD 2024, respectively, compared to $3.8 million and $9.8 million for the corresponding periods in 2023. The 38% increase in the quarterly period was due to higher volumes, which increased sales $2.1 million, or 56%, partly offset by a lower average selling price which decreased sales $0.7 million or 18%. The higher volumes were primarily due to improved demand. The 33% increase in the YTD period was due to higher volumes of $4.7 million, or 47%, partly offset by a lower average selling price of $1.4 million, or 14%. The higher volumes were primarily due to improved demand including $0.7 million in sales of SurfLock™ for extended trials in a pulp application with a leading global pulp producer. The lower average selling price during both periods was primarily due to lower manufacturing costs which were partially passed on to customers, as well as product mix.   

Gross Profit

Gross profit was $1.7 million and $3.7 million for Q3 2024 and YTD 2024, respectively, compared to $1.2 million and $2.3 million for the corresponding periods in 2023. The increase in both periods was primarily due to higher volumes and lower manufacturing costs, including lower manufacturing depreciation, partially offset by a lower average selling price.

Gross profit as a percentage of sales was 33.3% and 28.5% for Q3 2024 and YTD 2024, respectively, compared to 30.3% and 23.6% in the corresponding periods last year. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 36.8% and 32.7% for Q3 2024 and YTD 2024, respectively, compared to 34.0% and 30.9% for the corresponding periods in 2023. The increase in each period for both metrics was primarily due to lower manufacturing costs, partially offset by a lower average selling price.  

Selling, General and Administrative

Selling, general and administrative expenses (SG&A) were $1.5 million and $4.6 million for Q3 2024 and YTD 2024, respectively, compared to $1.2 million and $3.6 million for the corresponding periods in 2023. The increase during the quarterly period was due to an increase in variable based compensation. The increase in the YTD period was due to variable based compensation and asset relocation costs associated with the Company's manufacturing footprint realignment project.

Research and Development

Research and development (R&D) costs were $0.6 million for Q3 2024 and $1.7 million for YTD 2024, relatively unchanged from prior periods. R&D expense as a percentage of sales was 11% and 13% for Q3 2024 and YTD 2024, respectively, compared to 14% and 18% in the corresponding periods in 2023. 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 was $0.4 million for Q3 2024, a $0.6 million improvement compared to an Adjusted EBITDA loss of $0.2 million in the same period last year. Adjusted EBITDA loss was $1.0 million for YTD 2024, a $0.6 million improvement compared to $1.6 million in the same period last year. The improvement in each period was due to higher gross profit partially offset by higher operating expenses adjusted for non-cash items.  

Net Income

Net income was $0.1 million, or $0.00 per common share, for Q3 2024, compared to a net loss of $0.3 million, or $0.00 per common share, in the same period last year. Net loss was $1.2 million, or $0.02 per common share, for YTD 2024, compared to $2.2 million, or $0.04 per common share for the corresponding period in 2023. The $0.4 million improvement in the quarterly period was primarily due to a $0.3 million lower loss from operations and $0.1 million in higher net interest income. The $1.1 million improvement in the YTD period was primarily due to a $0.5 million lower loss from operations, $0.5 million in higher net interest income and a $0.1 million gain on the sale of redundant equipment. The higher net interest income during each period was due to an increase in interest rates on cash and term deposits.

Liquidity

Cash on hand and term deposits were $33.5 million as at September 30, 2024, compared to $33.3 million as at December 31, 2023. The Company purchased and cancelled 178,300 and 504,500 common shares under the NCIB during Q3 2024 and YTD 2024, respectively, for consideration of $0.6 million and $1.7 million.

Notice of Conference Call

EcoSynthetix will host a conference call Tuesday, November 5, 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/4eA6VKl to easily register and be connected into the conference call automatically or the conventional method by dialling (416) 945- 7677 or [phone] with the conference identification of 97178. 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/7je0kVJkmn6. 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 months and nine months ended September 30, 2024, and September 30, 2023:

	Three months ended September 30, 2024	Three months ended September 30, 2023	Nine months ended September 30, 2024	Nine months ended September 30, 2023
Net income (loss)	143,191	(267,947)	(1,160,042)	(2,236,423)
Depreciation	269,945	234,516	812,577	1,021,295
Share-based compensation	394,724	165,084	796,143	491,308
Gain on disposal of property, plant and equipment	-	-	(90,000)	-
Interest income	(443,146)	(320,755)	(1,309,064)	(829,891)
Adjusted EBITDA (loss)	364,714	(189,102)	(950,386)	(1,553,711)

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 2024. 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)
	September 30, 2024	Decemebr 31, 2023
Assets
Current assets
Cash	5,599,875	4,915,445
Term deposits	27,897,307	28,366,765
Accounts receivable	2,247,494	1,549,443
Inventory	2,232,970	3,642,923
Prepaid expenses	160,351	91,917
	38,137,997	38,566,493
Non-current assets
Property, plant and equipment	4,231,339	4,268,820
Total assets	42,369,336	42,835,313
Liabilities
Current liabilities
Trade accounts payables and accrued liabilities	2,714,379	1,607,140
Non-current liabilities
Lease liability	-	258,278
Total liabilities	2,714,379	1,865,418
Shareholders' Equity
Common shares	489,685,821	490,263,781
Contributed surplus	10,676,475	10,253,411
Accumulated deficit	(460,707,339)	(459,547,297)
Total shareholders' equity	39,654,957	40,969,895
Total liabilities and shareholders' equity	42,369,336	42,835,313

EcoSynthetix Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
For the three and nine months ended September 30, 2024 and September 30, 2023
(expressed in US dollars)
	Three months ended September 30,			Nine months ended September 30,
	2024	2023		2024	2023
Net sales	5,233,974	3,800,564		13,103,754	9,816,186
Cost of sales	3,491,521	2,648,579		9,368,132	7,498,403
Gross profit on sales	1,742,453	1,151,985		3,735,622	2,317,783
Expenses
Selling, general and administrative	1,479,267	1,226,127		4,642,440	3,638,671
Research and development	563,141	514,560		1,652,288	1,745,426
	2,042,408	1,740,687		6,294,728	5,384,097
Loss from operations	(299,955)	(588,702)		(2,559,106)	(3,066,314)
Net interest income	443,146	320,755		1,309,064	829,891
Gain on disposal of property, plant and equipment	-	-		90,000	-
	443,146	320,755		1,399,064	829,891
Net income (loss) and comprehensive income (loss)	143,191	(267,947)		(1,160,042)	(2,236,423)
Basic and diluted loss per common share	0.00	(0.00)		(0.02)	(0.04)
Weighted average number of common shares outstanding	58,758,013	58,711,122		58,692,474	59,024,253

EcoSynthetix Inc.
Interim Consolidated Statements of Cash Flows
For the three and nine months ended September 30, 2024 and September 30, 2023
(expressed in US dollars)
	Three months ended September 30,			Nine months ended September 30,
	2024	2023		2024	2023
Cash provided by (used in)
Operating activities
Net income (loss) and comprehensive income (loss)	143,191	(267,947)		(1,160,042)	(2,236,423)
Items not affecting cash
Depreciation	269,945	234,516		812,577	1,021,295
Share-based compensation	394,724	165,084		796,143	491,308
Other	(12,711)	69,672		(24,368)	28,520
Gain on disposal of property, plant and equipment	-	-		(90,000)	-
Changes in non-cash working capital
Accounts receivable	(776,092)	(314,010)		(698,051)	1,386,447
Inventory	253,148	(638,361)		1,349,274	1,271,071
Prepaid expenses	10,404	(306)		(68,434)	(81,808)
Trade accounts payables and accrued liabilities	928,942	769,268		1,097,867	(639,055)
Interest on term deposits
Interest received on term deposits	772,812	371,064		1,174,974	743,536
Accrued interest on term deposits	(408,296)	(261,305)		(1,205,516)	(691,502)
	1,576,067	127,675		1,984,424	1,293,389
Investing activities
Purchase of property, plant and equipment	(301,224)	(154,748)		(713,939)	(676,444)
Proceeds on disposal of property, plant and equipment	-	-		90,000	-
Receipts on mature term deposits	12,500,000	13,416,140		27,800,000	27,093,884
Purchase of term deposits	(11,500,000)	(12,500,000)		(27,300,000)	(23,982,840)
	698,776	761,392		(123,939)	2,434,600
Financing activities
Payments made on lease liability	(77,536)	(73,158)		(238,509)	(214,519)
Common shares repurchased	(550,794)	(749,239)		(1,661,498)	(1,677,206)
Exercise of common share options	-	-		710,459	26,867
	(628,330)	(822,397)		(1,189,548)	(1,864,858)
Effect of exchange rate changes on cash	14,749	(92,965)		13,493	(56,665)
Change in cash during the period	1,661,262	(26,295)		684,430	1,806,466
Cash - Beginning of period	3,938,613	6,641,367		4,915,445	4,808,606
Cash - End of period	5,599,875	6,615,072		5,599,875	6,615,072

SOURCE EcoSynthetix Inc.

For further information, please contact: Investor Relations, Ross Marshall, Phone: [phone], E-mail: [email protected]