TSO3 Reports Fourth Quarter and Full Year 2017 Results

QUEBEC CITY and MYRTLE BEACH, SC, March 20, 2018 /CNW Telbec/ - TSO₃ Inc. (TSX: TOS) ("TSO₃" or the "Company"), an innovator in sterilization technology for medical devices in healthcare settings, reported financial results for the fourth quarter and year ended December 31, 2017.

2017 Fourth Quarter Financial Summary

• Revenues increased to $5.8 million, as compared to $5.1 million in the third quarter of 2017 and $3.7 million in the fourth quarter of 2016. TSO₃ shipped 50 STERIZONE^® VP4 Sterilizers to Getinge Infection Control AB, the Company's exclusive distributor, and recorded revenue from sales of this equipment and associated license fees and consumables. The Company shipped 44 sterilizers to Getinge in the third quarter of 2017 and 30 sterilizers in the fourth quarter of 2016.
• Gross profit was $2.3 million, or 40% of revenue, as compared $2.0 million or 39% of revenue in the third quarter of 2017. Gross profit was $1.0 million or 28% of revenue in the fourth quarter of 2016, or $1.3 million and 36% of revenue on a non-IFRS basis after excluding a one-time write-down of $0.3 million for obsolete raw material inventory.
• Research and Development (R&D) expenses were $1.8 million, as compared to $1.6 million in the third quarter of 2017 and $1.3 million in the year-ago quarter.
• Sales, General and Administrative (SG&A) expenses were $2.0 million, as compared to $2.1 million in the third quarter of 2017 and $1.8 million in the year-ago quarter.
• The Company's net loss was $(1.4) million or $(0.02) per share as compared to $(1.8) million, or $(0.02) per share, in the third quarter of 2017 and to $(2.1) million or $(0.02) per share in the year-ago quarter.
• The Company had $14.8 million in cash, cash equivalents and investments and no debt as at December 31, 2017, as compared to $16.1 million and no debt at the end of the third quarter of 2017.
• Cash used by the operating activities was $0.7 million, as compared to $0.6 million in the third quarter of 2017.

2017 Full Year Financial Summary

• Revenue increased to $19.7 million in 2017, which included shipments of 170 STERIZONE VP4 Sterilizers and associated accessories and consumables to Getinge, as compared to $13.3 million in 2016.
• Gross profit increased to $7.7 million, or 39% of revenue in 2017, as compared to $4.1 million, or 31% of revenue in 2016, mainly related to growth of higher gross margin consumables sales and production cost reductions of STERIZONE^® VP4 Sterilizers which more than offset a decrease in gross profit contribution from accessories revenues.
• R&D expense grew to $6.2 million from $3.5 million in 2016 as the Company invested in personnel and other expenses associated with expanding its regulatory claims and its laboratory in the United States.
• SG&A expense grew to $8.7 million from $6.5 million in 2016 as the Company grew its sales and marketing and other management team members, and recorded $0.8 million of additional SG&A related non-cash share based compensation expense.
• The Company's net loss was $(7.5) million or $(0.08) per share, as compared to a net loss of $(4.4) million or $(0.05) per share in 2016, or a 2016 non-IFRS net loss of $(5.7) million or $(0.06) per share when excluding one-time items (see Supplemental Non-IFRS Financial Measures below).

Fourth Quarter 2017 and Subsequent Event Operational Highlights

• The Company announced that it had further dialogue with US Regulators in connection with their recent request for additional information (AI) regarding the Company's submission to extend claims of its STERIZONE^® VP4 Sterilizer to include terminal sterilization of duodenoscopes and that the Company believes that the information it has provided to the regulators addresses the majority of items listed within the initial AI request. Subsequent to year end, the Company filed its response with US Regulators which it believes addresses all remaining requests.
• The Company entered into a co-commercialization agreement with Getinge in a joint effort to increase sales to end users and optimize the customer experience. This agreement allows TSO₃ to repurchase 100 STERIZONE^® VP4 Sterilizers from Getinge at a favourable discount and sell them directly into the US and Canada alongside Getinge. Getinge and TSO₃ agreed to a customer selection mechanism to prevent the likelihood of channel conflict.

Management Commentary

In 2017, TSO₃ made progress in components of its operations.  The Company expanded its training with Getinge, installed more STERIZONE^® VP4 Sterilizers with Getinge in end user facilities, and submitted for additional US claims for the STERIZONE^® VP4 Sterilizer to include duodenoscopes.

Beginning in November of 2017, TSO₃ recruited and trained a team of five capital equipment commissioned sales leaders, along with clinical specialists and technical service support personnel.  This was followed, subsequent to year end, by a co-commercialization agreement with Getinge for North America which allows the Company to sell directly into the North American market and reduce distributor inventory on favourable terms.   

The sales team was trained in the new year and has established first contact with accounts of greater than 200 beds that were allocated to TSO₃ in its new arrangement with Getinge. The Company segmented its market based on surgical procedure requiring the greatest concentration of sterilization cycles and therefore would see the greatest immediate benefit to moving to the TSO₃ technology. To date, the Company's new sales and marketing team as identified new direct sales business, including issuing six customer quotes within its first six weeks of sales activity subsequent to the signing of the co-commercialization agreement with Getinge. While these quotations may not turn into final sales, this pipeline is growing and represents new opportunities as they had not previously been targeted by Getinge. The Company has also solidified plans to exhibit at major OR, CSSD, GI and infection control congresses over the next few months and has planned to host educational panels utilizing industry experts and opinion leaders having experience with our technology and its advantages.

In 2018, the Company looks forward to further installations of its industry leading technology, gaining a conclusion on its expanded US claims filings, completing the negotiations which have already been initiated on a new and improved arrangement with Getinge, and maintaining the class leading service levels it has achieved to date with its very satisfied end customers. 

Supplemental Non-IFRS Financial Measures

In addition to IFRS financial measures, management uses non-IFRS financial measures to assess the Company's operational performance. It is likely that the non-IFRS financial measures used by the Company will not be comparable to similar measures reported by other issuers or those used by financial analysts as their measures may have different definitions. The measures used by the Company are intended to provide additional information and should not be considered in isolation or as a substitute for IFRS financial performance measures.

Generally, a non-IFRS financial measure is a numerical measure of an entity's historical or future financial performance, financial position or cash flows that is neither calculated nor recognized under IFRS. Management believes that such non-IFRS financial measures are important as they provide users of the financial statements with a better understanding of the results of the Company's recurring operations and their related trends, while increasing transparency and clarity into its operating results. Management also believes these measures can be useful in assessing the Company's capacity to discharge its financial obligations.

Management is assessing its operational performance using supplemental non-IFRS measures which removes significant unusual items that do not reflect the recurring and ongoing operational results and trends.

Additional Fourth Quarter and Full Year 2017 Financial information
$000's		2017			2016
	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Net income (loss)	(1,449)	(1,771)	(2,254)	(1,980)	(2,068)	(1,473)	(1,487)	649
Significant realized and unrealized foreign exchange gains	-	-	-	-	-	-	-	(1,578)
Financial expenses (income)	74	48	49	(39)	(69)	(50)	-	(10)
Amortization and depreciation	246	331	221	168	120	147	103	77
Share-based compensation expense	301	632	592	609	286	333	268	216
One-time write-off of inventory	-	-	-	-	312	-	-	-
Income taxes	(59)	33	29	27	48	15	(12)	58
Adjusted Ebitda	(887)	(727)	(1,363)	(1,215)	(1,371)	(1,028)	(1,128)	(588)

The fourth quarter of 2016 was impacted by a one-time write-off of inventory of $0.3 million associated with a commitment to purchase of raw materials made in the year but made obsolete by improvements in installation alternatives in response to feedback from end customers.

The first quarter of 2016 was impacted by a significant foreign exchange gain realized of $1.6 million on the translation of Canadian dollar denominated monetary assets and liabilities following the change in functional currency from Canadian dollars to US dollars.

Adjusted EBITDA, is adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (Adjusted EBITDA). Adjusted EBITDA adjusts net income for (1) significant realized and unrealized foreign exchange gains or losses, (2) financial expenses (income), (3) amortization and depreciation expenses (4) share-based compensation expense, (5) write-downs of certain tangible and intangible assets, (6) one-time write-off of inventory, (7) income taxes, and (8) other significant unusual items.

Summary of Results
Periods ended December 31 (Audited, IFRS Basis, in thousands of US dollars, except per share amounts)
		2017 $	2016 $
Revenues		19,726	13,301
Cost of sales		12,068	9,188
Gross profit		7,658	4,113
Expenses
	Research and development	6,222	3,512
	Selling, general and administrative	8,728	6,529
	Financial expenses (income)	132	(1,658)
Total Expenses		15,082	8,383
Net loss before income taxes		(7,424)	(4,270)
Income taxes		30	109
Net loss and comprehensive loss		(7,454)	(4,379)
Weighted average number of outstanding shares (in thousands)		92,508	90,810
Basic and diluted net loss per share		(0.08)	(0.05)
Basic and diluted net comprehensive loss per share		(0.08)	(0.05)

Fourth Quarter Analysis
(Unaudited, IFRS Basis, USD$ except share figures)
Three-month period ended December 31, 2017, compared to the three-month period ended December 31, 2016:
		Fourth Quarter 2017 $	Fourth Quarter 2016 $
Revenues		5,780	3,746
Cost of sales		3,455	2,716
Gross profit		2,325	1,030
Expenses
	Research and development	1,766	1,297
	Selling, general and administrative	1,993	1,774
	Financial expenses (income)	74	(21)
Total Expenses		3,833	3,050
Net loss before income taxes		(1,508)	(2,020)
Income taxes		(59)	48
Net loss and comprehensive loss		(1,449)	(2,068)
Weighted average number of outstanding shares (in thousands)		92,508	90,810
Basic and diluted net loss per share		(0.02)	(0.02)
Basic and diluted net comprehensive loss per share		(0.02)	(0.02)

Consolidated Statements of Financial Position
As of December 31, 2017, and 2016 (In thousands of US dollars)
		2017 $	2016 $
Current Assets
	Cash and Cash Equivalents	8,044	2,698
	Short-term Investments	6,764	15,064
	Accounts Receivable	651	2,318
	Inventories	2,040	1,703
	Prepaid Expenses	150	102
		17,649	21,885
Non-current Assets
	Long-term Investments	-	1,498
	Property, Plant and Equipment	3,184	2,357
	Intangible Assets	1,886	1,836
		5,070	5,691
		22,719	27,576
Current Liabilities
	Accounts Payable and Accrued Liabilities	2,430	2,272
	Warranty Provision	1,263	575
	Current Tax Liabilities	68	-
	Deferred Revenues	6	1,004
		3,767	3,851
Non-current Liabilities
	Deferred Tax Liabilities	17	109
	Deferred Revenues	6,044	5,945
		9,828	9,905
Equity
	Share Capital	111,215	110,406
	Reserve – Share-based Compensation	6,574	4,709
	Deficit	(103,186)	(95,732)
	Accumulated Other Comprehensive Loss	(1,712)	(1,712)
		12,891	17,671
		22,719	27,576

Consolidated Statements of Cash Flows
As of December 31, 2017 and 2016 (In thousands of US dollars)
		2017 $	2016 $
Cash flows from operating activities
Net loss		(7,454)	(4,379)
Adjustments for:
	Depreciation and amortization	966	448
	Loss on write-down of property, plant and equipment	46	-
	Income tax liabilities	68	-
	Deferred income tax liabilities	(92)	109
	Share-based compensation	2,134	1,103
	Investment income	(131)	(180)
		(4,463)	(2,899)
	Changes in non-cash operating working capital items	1,148	(2,597)
	Interest received	185	106
Cash flows used in operating activities		(3,130)	(5,390)
Cash flows from investing activities
	Acquisition of investments	(6,349)	(26,195)
	Disposal of investments	16,091	12,164
	Acquisition of property, plant and equipment	(1,567)	(1,085)
	Acquisition of intangible assets	(239)	(314)
Cash flows used in investing activities		7,936	(15,430)
Cash flows from financing activities
	Options exercised	540	719
	Warrants exercised	-	10,145
Cash flows generated by financing activities		540	10,864
	Increase (decrease) in cash and cash equivalents	5,346	(9,956)
	Cash and cash equivalents at the beginning	2,698	12,654
Cash and cash equivalents at the end		8,044	2,698

Consolidated Statements of Cash Flows
(Unaudited, IFRS Basis, in thousands of US dollars)
Three-month period ended December 31, 2017, compared to the three-month period ended December 31, 2016
		Q4-2017 $	Q4-2016 $
Cash flows from operating activities
Net loss		(1,449)	(2,160)
Adjustments for:
	Depreciation and amortization	251	106
	Loss on write-down of property, plant and equipment	6	-
	Current and Deferred income tax liabilities	(113)	109
	Share-based compensation	301	286
	Investment income	8	(49)
		(996)	(1,601)
	Changes in non-cash operating working capital items	265	537
	Interest received	57	11
Cash flows used in operating activities		(674)	(1,053)
Cash flows from investing activities
	Acquisition of investments	(3,440)	(3,278)
	Disposal of investments	5,077	3,319
	Acquisition of property, plant and equipment	(513)	(450)
	Acquisition of intangible assets	(50)	(66)
Cash flows used in investing activities		1,074	(475)
Cash flows from financing activities
	Options exercised	-	47
Cash flows generated by financing activities		-	47
	Increase (decrease) in cash and cash equivalents	400	(1,481)
	Cash and cash equivalents at the beginning	7,644	4,179
Cash and cash equivalents at the end		8,044	2,698

Conference call

TSO₃ President and CEO R.M. (Ric) Rumble and CFO Glen Kayll, will host the conference call, followed by a question and answer period.

Date: Wednesday, March 21, 2018
Time: 8:30 a.m. Eastern Daylight Time 
Toll-free dial-in number: 1-888-231-8191
International dial-in number: 1-514-807-9895 (Montreal); 1-647-427-7450 (Toronto)
Conference ID: 4476389

Analysts and institutional investors are invited to participate on the call. Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gilmartin Group at 1-610-368-6505.  

Other interested parties may listen to the live webcast of the conference call at http://event.on24.com/r.htm?e=1620935&s=1&k=55000E6EB791C7A51DDF8935BC80AC6D which will be available for replay in the Investors section of the Company's website at www.tso3.com.  

Fourth Quarter and Fiscal 2017 Results Disclosure

The 2017 Annual Report is available on TSO₃'s website at the following address http://www.tso3.com/en/investors/financial_reporting/annual_reports/ and full 2017 disclosure will shortly be available on SEDAR (www.sedar.com).

About the STERIZONE^® VP4 Sterilizer

The STERIZONE^® VP4 Sterilizer is a low-temperature sterilization system that utilizes the dual-sterilants of vaporized hydrogen peroxide (H₂O₂) and ozone (O₃) to achieve terminal sterilization of heat and moisture sensitive medical devices. Its single pre-programmed cycle can sterilize a large number and wide range of compatible devices, creating a cost-effective sterilization process with error free cycle selection. The device's unique Dynamic Sterilant Delivery System™ automatically adjusts the quantity of injected sterilant based on the load composition, weight and temperature. This capability removes the guesswork and potential for human error, as there is no need to sort instruments and choose the appropriate cycles as with other machines.

The STERIZONE^® VP4 Sterilizer is the only terminal sterilization method that is FDA cleared to sterilize multi-channeled flexible endoscopes (with a maximum of four channels) of up to 3.5 meters in length, such as video colonoscopes and gastroscopes - an industry first for any medical device sterilization process.

The STERIZONE^® VP4 Sterilizer is also the only cleared low temperature sterilizer that can process a mixed load consisting of general instruments, single channel flexible endoscopes, and single or double channel rigid endoscopes in the same cycle with load weights of up to 75 lb.  The ability to run mixed loads significantly reduces labor costs by minimizing the amount of instrument sorting required, while maximizing the device turns (more productivity from increased throughput capacity). 

More information about the STERIZONE^® VP4 Sterilizer is available through TSO₃'s website, under the Products section at http://www.tso3.com/en/products/sterizone-vp4/.

About TSO₃

Founded in 1998, TSO₃'s activities encompass the sale, production, maintenance, research, development and licensing of sterilization processes, related consumable supplies and accessories for heat-sensitive medical devices. The Company designs products for sterile processing areas in the hospital environment that offer an advantageous replacement solution to other low temperature sterilization processes currently used in hospitals. TSO₃ also offers services related to the maintenance of sterilization equipment and compatibility testing of medical devices with such processes.

For more information about TSO₃, visit the Company's website at www.tso3.com.

The statements in this release and oral statements made by representatives of TSO₃ relating to matters that are not historical facts are forward-looking statements that involve certain risks, uncertainties and hypotheses, including, but not limited to, the limited history of sales or distribution of the Company, the ability of the Company to obtain the required regulatory clearances to market its products, general business and economic conditions, the condition of the financial markets, the ability of TSO₃ to obtain financing on favourable terms and other risks and uncertainties. Although TSO₃ believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The complete versions of the cautionary note regarding forward-looking statements as well as a description of the relevant assumptions and risk factors likely to affect TSO₃'s actual or projected results are included in the Management's Discussion and Analysis for the year ended December 31, 2017, which is available on the Company's website. The forward-looking statements contained in this press release are made as of the date hereof, and TSO₃ does not assume any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless expressly required by applicable securities laws.

SOURCE TSO3 Inc.

Company Contacts: R.M. (Ric) Rumble, President and CEO, Tel: [phone], Email: [email protected]; Glen Kayll, CFO, Tel: [phone], Email: [email protected]; Investor Relations: Gilmartin Group, Greg Chodaczek, Tel: [phone], Email: [email protected]; Renmark Financial Communications Inc., Barry Mire, Tel: [phone] or 514 939-3989, Email: [email protected]

Related Links

http://www.tso3.com