EcoSynthetix Reports Fourth Quarter and Fiscal 2015 Results

BURLINGTON, ON, March 9, 2016 /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 and twelve months ended December 31, 2015. Financial references are in U.S. dollars unless otherwise indicated.

Highlights

• Successfully advanced wood composite trials with multiple prospects moving from 'totes to tanker' volumes in longer duration production runs across multiple SKUs, subsequent to the end of the period. These represent significant milestones in preparation for continuous operation.
• Recruited Dr. James Wright as Vice President, Research & Development, subsequent to the end of the quarter, who brings senior-level technical experience, including development of bonding, saturating and coating products, from his work with Arclin and Georgia Pacific Chemicals. This is concurrent with the decision of co-founder and Executive Vice President of Technology, Steven Bloembergen, to leave the Company to pursue a new venture.
• Recorded $14.6 million in net sales for 2015, despite significant headwinds from challenging macroeconomic conditions and paper industry dynamics.
• Maintained a strong balance sheet with cash on hand of $60.7 million as at December 31, 2015 and reduced cash used in operating activities to $5.9 million in 2015, while continuing to invest in new product segments, specifically wood composites.
• Filed a normal course issuer bid through the facilities of the Toronto Stock Exchange to purchase up to a maximum of 3.37 million shares of the Company, subsequent to the end of the quarter.

"We have made significant progress in our commercialization strategy for DuraBind," said Jeff MacDonald, CEO of EcoSynthetix. "Our lead prospects have advanced from running tote-sized quantities of DuraBind to multiple tanker truck-sized trials. DuraBind has now been used to produce several million square feet of sellable board; which clearly supports our commercialization strategy for DuraBind in 2016."

"On behalf of the Board and our employees, I would like to thank our co-founder, Steven Bloembergen, for the scientific vision and entrepreneurial passion he brought to this business since its founding. I am thankful for the strong relationship we will continue to share as he embarks on this next venture, and wish him every success," continued Mr. MacDonald. "In addition, I would like to welcome James Wright to the EcoSynthetix team. James brings a customer-oriented approach to R&D, a clear track record and a level of expertise that will allow us to accelerate our pace of innovation. He has a proven ability to turn product concepts into commercial successes, experience in building high performance R&D organizations, and a deep understanding of a number of markets where we're positioned for future growth, including building products."

Outlook

In 2015, EcoSynthetix introduced a disciplined plan that would return the Company to growth, and it took meaningful steps in delivering on this strategy. In 2016, the Company will continue to focus on executing against the following three priorities as part of this plan:

1.       Defined product pipeline
The Company's progress in the commercialization of its DuraBind product offering in the building products space will continue to drive development efforts. EcoSynthetix expects the steady progress it made through 2015 will deliver commercial success in the near term. Next generation DuraBind product offerings will be introduced that further build the Company's value proposition for wood composite customers, in addition to new offerings for other applications in the broader building products space, as well as for paper and paperboard. The addition of Dr. James Wright as Vice President Research & Development, who is a veteran in the building products space, will accelerate the Company's innovation efforts.

2.       Diversified business verticals
The Company will focus on expanding its presence in the building materials space, while further developing relationships with customers in paper and paperboard. Specific opportunities that could drive sales over the next 12 months are the commercialization of: (i) no added formaldehyde (NAF) solutions that will enable customers in the building products space to meet consumer and regulatory demand; (ii) bio-based solutions for paper; and, (iii) new offerings for paperboard customers.

3.       Disciplined organizational growth
External factors had a significant and negative impact on the Company's paper business. However, despite a 50% reduction in oil prices through the last 12 months, along with a 5% decline in demand for paper in the North American market, EcoSynthetix made strides in establishing a strong financial foundation for the business. The Company's cash burn was reduced by approximately 50% year-over-year. This demonstrates a commitment to controlled investment in the business going forward.

A majority of the Company's human and financial resources remain focused on the commercialization of DuraBind in the wood composites space. Over the next 12 months, the Company will continue making investments that will allow it to scale this business as it gains traction, while seeking out opportunities to further reduce internal costs. EcoSynthetix remains highly confident in its ability to realize on the opportunities in front of it, and with a disciplined investment strategy, the Company will ensure the business is effectively scaled for the growth it anticipates.

Financial Summary

Net Sales

Net sales were $3.0 million for the three months ended December 31, 2015 (Q4 2015) compared to $4.5 million in the same period last year. The change was primarily attributable to a $1.2 million decrease in sales volume which was primarily due to unfavourable market conditions including, the closure of a North American paper mill, as well as $0.3 million of reduced pricing primarily due to lower pricing for petroleum substitutes for our products.

Net sales were $14.6 million for the fiscal year ended December 31, 2015 (full year 2015) compared to $18.8 million in 2014. The change was a result of lower sales volumes of $2.6 million primarily related to unfavourable market conditions, including the closure of two North American paper mills, which reduced sales by $1.9 million, as well as, $1.6 million of reduced pricing primarily due to lower pricing for petroleum substitutes for our products.

Gross Profit

Gross profit was $0.3 million for Q4 2015 compared to $0.7 million for the same period last year, principally due to lower sales volume and reduced pricing partly offset by lower manufacturing production costs primarily due to lower feedstock costs. Gross profit as a percentage of sales was 10.9% compared to 16.6% in the same period in 2014.  Gross profit as a percentage of sales adjusted for manufacturing depreciation was 18.7% in the fourth quarter compared to 21.6% in 2014

Gross profit was $2.1 million for the full year 2015, compared to $3.2 million in 2014. Gross profit as a percentage of sales was 14.3% in the full year 2015 compared to 16.8% in 2014. The decrease in gross profit was principally due to lower sales volumes and reduced pricing partly offset by lower manufacturing production costs primarily due to lower feedstock costs. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 20.3% in the full year 2015 compared to 22.3% in 2014. 

Selling, General and Administrative
(Excludes share-based compensation, depreciation and amortization, foreign exchange loss or gain, provision for termination benefits and impairment loss on PP&E)

Selling, general and administrative expenses (SG&A) were $1.5 million in Q4 2015, compared to $2.4 million in the same period last year, a decrease of $0.9 million, or 36%. SG&A expenses were $6.9 million in the full year 2015, compared to $11.1 million in 2014, a decrease of $4.2 million, or 38%. The decrease in both periods was primarily due to lower salaries & benefits and reduced discretionary spending as a result of the workforce reduction of approximately 20% announced during fiscal 2015. SG&A was also favourably impacted by the weaker Canadian dollar versus the U.S. dollar.

Research and Development
(Excludes share-based compensation, depreciation and amortization and foreign exchange loss or gain)

Research and development (R&D) costs were $0.9 million in Q4 2015 compared to $1.3 million in the same period last year. R&D costs were $3.5 million in the full year 2015 compared to $5.3 million in 2014. The change in both periods was primarily due to the favourable impact of a weaker Canadian dollar versus the U.S. dollar, the recognition of government grants and lower discretionary spending.

Provision for Termination Benefits

The Company recognized $0.7 million and $1.9 million in provision for termination benefits in Q4 2015 and the full year 2015, respectively. The provision was recorded in respect of a workforce reduction during fiscal 2015 and the termination of employment with the former CEO effective May 1, 2015.

Impairment Loss on Property, Plant & Equipment (PP&E)

During the three months and fiscal year ended December 31, 2015 the Company determined that an indication of impairment existed primarily due to the value of the Company's net assets exceeding the market capitalization of the Company and on-going operating losses.  The Company performed an impairment assessment as at December 31, 2015 and determined that the recoverable amount of leasehold improvements and machinery and equipment was below their carrying value which resulted in the recognition of a $2.5 million impairment charge.

Foreign Currency Exchange Loss

Foreign exchange losses were $0.3 million in Q4 2015 compared to $0.1 million in the same period last year, an increase of $0.2 million. Foreign exchange losses were $0.9 million for the full year 2015 compared to $0.2 million in 2014, an increase of $0.7 million. The increase in exchange losses during both periods was primarily due to translation losses from cash balances denominated in Canadian dollars and the weakening of the Canadian dollar versus U.S. dollar. 

Adjusted EBITDA

Adjusted EBITDA loss for the three months ended December 31, 2015 was $2.9 million compared to $2.9 million in the same period last year. Adjusted EBITDA for the fiscal year ended December 31, 2015 was $10.4 million compared to $12.6 million in fiscal 2014, a decrease of $2.3 million or 18%.

Adjusted EBITDA loss for the three months and fiscal year ended December 31, 2015 adjusted for the provision of termination benefits and unrealized foreign exchange translation losses was $2.3 million and $8.3 million compared to $2.9 million and $12.6 million in the same periods in fiscal 2014, respectively. 

Loss from operations

Loss from operations in Q4 2015 was $6.0 million compared to $3.5 million in the same period last year, an increase of $2.5 million or 70%.  The increase was due to the recognition of an impairment loss on PP&E, provision for termination benefits and lower gross profit partly offset by lower SG&A and R&D costs. Loss from operations in full year 2015 was $14.7 million compared to $14.8 million, a decrease of $0.1 million or 1%. The decrease was due to lower SG&A and R&D costs partly offset by an impairment loss on PP&E, provision for termination benefits and lower gross profit. 

Net Loss       

Net loss in Q4 2015 was $5.9 million or $0.10 per common share compared to $3.5 million or $0.06 per common share, during the same period last year. The increase was due to a higher loss from operations during the same period.  Net loss in full year 2015 was $14.4 million or $0.25 per common share compared to $14.5 million or $0.26 per common share, a decrease of $0.1 million or 1%. The decrease was principally due to a decrease in loss from operations.

Liquidity

Cash on hand was $60.7 million as at December 31, 2015, compared to $67.2 million at December 31, 2014. The decrease was principally due to cash used in operating and investing activities.   

Notice of Conference Call

EcoSynthetix will host a conference call on Thursday, March 10, 2016 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]. 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, impairment loss on PP&E and other non-cash expenses and charges deducted in determining consolidated net income (loss).

The following table reconciles net loss to Adjusted EBITDA for the three months and twelve months ended December 31, 2015 and December 31, 2014:

	Three months ended December 31, 2015	Three months ended December 31, 2014	Twelve months ended December 31, 2015	Twelve months ended December 31, 2014
Net Loss	$(5,914,317)	$(3,450,295)	$(14,420,488)	$(14,514,589)
Depreciation, Amortization and Impairment Loss on PP&E	2,881,373	523,855	3,945,407	1,767,366
Share-based Compensation	171,696	90,000	413,123	456,000
Interest Income	(72,292)	(77,806)	(295,373)	(331,081)
Adjusted EBITDA Loss	$(2,933,540)	(2,914,246)	$(10,357,331)	$(12,622,304)

About EcoSynthetix Inc. (www.ecosynthetix.com)

EcoSynthetix offers a range of engineered biopolymers that replace the non-renewable chemicals used to manufacture many products, such as paper and packaging, personal care products, insulation and wood composites. The Company's flagship products, EcoSphere® biolatex® and DuraBind^TM biopolymers, provide a sustainable alternative that reduces a customer's carbon footprint, decreases overall material costs and improves performance. 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 expected product pipeline, plans to expand the Company's business into new markets, the Company's ability to achieve organizational efficiencies, and other statements regarding the Company's plans and expectations in 2016. 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 March 31, 2015 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 (Unaudited)
(expressed in US dollars)
	December 31, 2015		December 31, 2014
Assets
Current assets
Cash	60,717,658		67,245,970
Accounts receivable	1,177,719		2,258,151
Inventory	3,290,238		5,497,944
Government grants receivable	528,436		66,957
Prepaid expenses	242,983		286,288
	65,957,034		75,355,310
Non-current assets
Intangible assets	-		52,683
Property, plant and equipment (PP&E)	8,746,072		11,690,072
Total assets	74,703,106		87,098,065
Liabilities
Current liabilities
Accounts payable and accrued liabilities	1,262,709		1,571,976
Accrued termination benefits	1,277,755		-
Total liabilities	2,540,464		1,571,976
Shareholders' Equity
Common shares	493,182,209		492,041,244
Contributed surplus	8,017,907		8,101,831
Accumulated deficit	(429,037,474)		(414,616,986)
Total shareholders' equity	72,162,642		85,526,089
Total liabilities and shareholders' equity	74,703,106		87,098,065

EcoSynthetix Inc. Interim Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
For the three and twelve months ended December 31, 2015 and December 31, 2014
(expressed in US dollars)
	Three months ended December 31,				Twelve months ended December 31,
	2015		2014		2015		2014
Net sales	2,984,351		4,464,141		14,582,820		18,841,745
Cost of sales	2,660,013		3,723,639		12,500,455		15,671,096
Gross profit on sales	324,338		740,502		2,082,365		3,170,649
Expenses
Selling, general and administrative	2,121,524		2,853,825		8,488,594		12,210,214
Provision for termination benefits	719,000		-		1,939,080		236,473
Research and development	970,423		1,414,778		3,870,552		5,569,632
Impairment loss on PP&E	2,500,000		-		2,500,000		-
	6,310,947		4,268,603		16,798,226		18,016,319
Loss from operations	(5,986,609)		(3,528,101)		(14,715,861)		(14,845,670)
Interest income	72,292		77,806		295,373		331,081
Net loss and comprehensive loss	(5,914,317)		(3,450,295)		(14,420,488)		(14,514,589)
Basic and diluted loss per common share	(0.10)		(0.06)		(0.25)		(0.26)
Weighted average number of common shares outstanding	58,607,787		56,580,168		57,977,096		56,656,036

EcoSynthetix Inc.
Interim Consolidated Statements of Cash Flows
(Unaudited)
For the three and twelve months ended December 31, 2015 and December 31, 2014
(expressed in US dollars)		Three months ended December 31,				Twelve months ended December 31,
		2015		2014		2015		2014
Cash provided by (used in)
Operating activities
Net loss		(5,914,317)		(3,450,295)		(14,420,488)		(14,514,589)
Items not affecting cash
	Depreciation, amortization and impairment loss on PP&E	2,881,373		523,855		3,945,407		1,767,366
	Share-based compensation	171,696		90,000		413,123		456,000
	Unrealized foreign exchange (gain) loss	(134,210)		-		139,937		-
	Other	388,946		-		796,115		-
Changes in non-cash working capital
	Accounts receivable	159,204		507,939		1,080,432		1,433,640
	Inventory	460,307		808,680		2,139,842		787,338
	Government grants receivable	(149,097)		356,798		(917,228)		194,691
	Prepaid expenses	73,769		7,910		43,305		(9,432)
	Accounts payable and accrued liabilities	168,006		(1,627,672)		(409,267)		(2,375,409)
	Accrued termination benefits	614,291		-		1,277,755
		(1,280,032)		(2,782,785)		(5,911,067)		(12,260,395)
Investing activities
Cash used for purchase of intangible assets and property, plant and equipment		(3,140)		(145,803)		(780,860)		(425,796)
		(3,140)		(145,803)		(780,860)		(425,796)
Financing activities
Exercise of common share options		70,799		-		643,918		27,930
Exercise of warrants		-		-		-		160,058
Repurchase of common shares		-		(68,013)		-		(762,784)
Proceeds from government grant		-		-		455,749		-
Cash provided by financing activities		70,799		(68,013)		1,099,667		(574,796)
Effect of exchange rate changes on cash and cash equivalents		(165,557)		-		(936,052)		-
Change in cash during the period		(1,377,930)		(2,996,601)		(6,528,312)		(13,260,987)
Cash - Beginning of period		62,095,588		70,242,571		67,245,970		80,506,957
Cash - End of period		60,717,658		67,245,970		60,717,658		67,245,970

SOURCE EcoSynthetix Inc.

EcoSynthetix Inc., Steve Snyder, Phone: [phone], E-mail: [email protected]; Investor Relations, Ross Marshall, Phone: [phone], E-mail: [email protected]