TSO3 Reports Fourth Quarter and Full Year 2018 Results

QUEBEC CITY and MYRTLE BEACH, SC, March 27, 2019 /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, 2018.

Business Highlights

In the fourth quarter of 2018, TSO₃ received purchase orders for a record 21 units of its industry-leading STERIZONE^® VP4 Sterilizer and shipped nine sterilizers to end users. 

The Company continues to aggressively uncover new opportunities and now has over 450 sterilizers in its qualified sales pipeline.  The Company expects to achieve purchase orders and commitment indications for more than 10 sterilizers in the first quarter of 2019 and currently has 75 STERIZONE^® VP4 Sterilizers installed at end customer locations. 

"In 2018, TSO₃ pivoted from a third-party distribution model to that of a direct sales strategy.  This action was taken to increase the pace of deployment of our propriety STERIZONE^® VP4 Sterilizer," stated R.M. (Ric) Rumble, president and CEO of TSO₃. "Since taking these actions, we are experiencing end customer adoption at rates in excess of past performance, which gives us an early indication that we are on the right path."

2018 Fourth Quarter Financial Summary

• Revenues equaled $1.1 million, as compared to $0.8 million in the third quarter of 2018 and $5.8 million in the fourth quarter of 2017. TSO₃ revenues in the fourth quarter of 2018 reflect sales of sterilizers and related accessories, service and $0.4 million of consumables directly to end customers. The Company shipped nine sterilizers to hospitals in the fourth quarter of 2018 as opposed to four sterilizers to hospitals in the third quarter of 2018 and 50 sterilizers to its former distributor in the fourth quarter of 2017.
• Gross profit was $0.04 million on an IFRS basis ($0.6 million, or 52% of revenues, on a non-IFRS basis after excluding a non-recurring write-down of $0.5 million of raw material inventories), as compared to $1.2 million, or 150% of revenues, in the third quarter of 2018 and $2.3 million, or 40% of revenues, in the fourth quarter of 2017.
• Research and Development (R&D) expenses amounted to $1.1 million on an IFRS basis ($0.7 million on a non-IFRS basis after excluding a non-recurring write-down of $0.4 million on sterilizers developed internally that will not be commercialized in the upcoming year), as compared to $1.3 million in the third quarter of 2018 and $1.8 million in the fourth quarter of 2017.
• Sales, General and Administrative (SG&A) expenses were $2.7 million, as compared to $2.6 million in the third quarter of 2018 and $2.0 million in the fourth quarter of 2017.
• Financial income was $1.1 million, as compared to $0.6 million in the third quarter of 2018 and an immaterial amount in the fourth quarter of 2017. The Company recorded $0.8 million of accrued interest expense in the fourth quarter of 2018 related to a $20.0 million debt financing it obtained in August 2018 and a non-cash gain of $1.8 million on the revaluation of the embedded derivative within the Convertible Note associated with this financing.
• The Company's net loss was $(2.7) million, or $(0.03) per share, as compared to $(2.1) million, or $(0.02) per share, in the third quarter of 2018 and to $(1.4) million, or $(0.02) per share in the fourth quarter of 2017.
• The Company had $13.0 million in cash, cash equivalents and investments and $18.0 million of debt as of December 31, 2018, as compared to $16.1 million in cash, cash equivalents and investments and $19.1 million of debt at the end of the third quarter of 2018.
• Cash used by the operating activities was $3.0 million, $0.9 million of which was used in working capital items.

2018 Full Year Financial Summary

• Revenues equaled $2.5 million in 2018, which includes shipments of 13 sterilizers to medical facilities end customers and associated accessories, consumables and service, as compared to $19.7 million in 2017 which included shipments of 170 sterilizers to our former distributor along with accessories, consumables, service and license fee revenue recognition.
• Gross profit was $1.0 million, or 39% of revenues in 2018, as compared to $7.7 million, or 39% of revenues, in 2017.
• R&D expenses were $5.5 million in 2018, as compared to $6.2 million in 2017. The Company reduced its research and development expenditures as it focused more of its expenditures on selling and marketing activities.
• SG&A expenses were $10.3 million in 2018, as compared to $8.7 million in 2017 as the Company grew its sales and marketing team members and activities while decreasing general and administrative expenditures.
• Financial income was $1.7 million, as compared to a financial expense of $0.1 million in 2017. The Company recorded $1.2 million of accrued interest expense related to a $20.0 million debt financing it obtained on August 1, 2018 and a non-cash gain of $2.9 million on the revaluation of the embedded derivative within the Convertible Note associated with this financing.
• The Company net loss and comprehensive loss totaled $(13.2) million or $(0.14) per share, as compared to $(7.5) million or $(0.08) per share of net loss and comprehensive loss in 2017.

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 2018 Financial information
	2018				2017
$000's	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Net (loss)	(2,676)	(2,104)	(3,952)	(4,512)	(1,449)	(1,771)	(2,254)	(1,980)
Financial (income) expenses	(1,055)	(599)	(12)	(14)	74	48	49	(39)
Amortization and depreciation	235	270	292	315	246	331	221	168
Write-down of tangible and intangible assets	1,026	-	-	-	-	-	-	-
Share-based compensation expense	369	688	627	371	301	632	592	609
Income taxes	7	11	7	-	(59)	33	29	27
Adjusted Ebitda	(2,094)	(1,734)	(3,038)	(3,840)	(887)	(727)	(1,363)	(1,215)

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
Year ended December 31 (Unaudited, IFRS Basis, in thousands of US dollars, except per share amounts)
	2018	2017
	$	$
Revenues	2,532	19,726
Cost of sales	1,534	12,068
Gross profit	998	7,658
Expenses
Research and development	5,547	6,222
Selling, general and administrative	10,348	8,728
Financial (income) expenses	(1,678)	132
Total Expenses	14,217	15,082
Net loss before income taxes	(13,219)	(7,424)
Income taxes	25	30
Net loss and comprehensive loss	(13,244)	(7,454)
Weighted average number of outstanding shares (in thousands)	93,108	92,508
Basic and diluted net loss per share	(0.14)	(0.08)
Basic and diluted net comprehensive loss per share	(0.14)	(0.08)

Fourth Quarter Analysis
(Unaudited, IFRS Basis, in thousands of US dollars, except per share amounts)
Three-month period ended December 31, 2018, compared to the three-month period ended December 31, 2017:
	Fourth Quarter 2018	Fourth Quarter 2017
	$	$
Revenues	1,122	5,780
Cost of sales	1,083	3,455
Gross profit	39	2,325
Expenses
Research and development	1,095	1,766
Selling, general and administrative	2,667	1,993
Financial (income) expenses	(1,054)	74
Total Expenses	2,708	3,833
Net loss before income taxes	(2,669)	(1,508)
Income taxes	7	(59)
Net loss and comprehensive loss	(2,676)	(1,449)
Weighted average number of outstanding shares (in thousands)	93,108	92,508
Basic and diluted net loss per share	(0.03)	(0.02)
Basic and diluted net comprehensive loss per share	(0.03)	(0.02)

Consolidated Statements of Financial Position
As of December 31, 2018, and 2017 (Unaudited, IFRS Basis, in thousands of US dollars)
	2018	2017
	$	$
Current Assets
Cash and Cash Equivalents	12,961	8,044
Investments	-	6,764
Accounts Receivable	1,591	651
Inventories	3,534	2,040
Current Tax Assets	16	-
Prepaid Expenses	261	150
	18,363	17,649
Non-current Assets
Property, Plant and Equipment	2,039	3,184
Intangible Assets	1,781	1,886
	3,820	5,070
	22,183	22,719
Current Liabilities
Accounts Payable and Accrued Liabilities	1,858	2,430
Warranty Provision	273	1,263
Current Tax Liabilities	-	68
Deferred Revenues	103	6
	2,234	3,767
Non-current Liabilities
Deferred Tax Liabilities	51	17
Debt	16,711	-
Embedded Derivative	1,319	-
Deferred Revenues	-	6,044
	20,315	9,828
Equity
Share Capital	111,470	111,215
Reserve – Share-based Compensation	8,540	6,574
Deficit	(116,430)	(103,186)
Accumulated Other Comprehensive Loss	(1,712)	(1,712)
	1,868	12,891
	22,183	22,719

Consolidated Statements of Cash Flows
As of December 31, 2018 and 2017 (Unaudited, IFRS Basis, in thousands of US dollars)
	2018	2017
	$	$
Cash flows from operating activities
Net loss	(13,244)	(7,454)
Adjustments for:
Depreciation and amortization	1,112	966
Loss on write-down of property, plant and equipment	450	46
Loss on write-down of intangibles assets	98	-
Loss on write-down of inventories	544	-
Income tax	(84)	(92)
Deferred income tax liabilities	34	68
Share-based Compensation	2,055	2,134
Reversal of warranty provision	(973)	-
Capitalized interest on long term debt	1,210	-
Gain on re-measurement at fair-value on embedded derivative	(2,898)	-
Investment income	(111)	(131)
	(11,807)	(4,463)
Changes in non-cash operating working capital items	(9,730)	1,148
Interest received	149	185
Cash flows used by operating activities	(21,388)	(3,130)
Cash flows from investing activities
Acquisition of investments	-	(6,349)
Disposal of investments	6,726	16,091
Acquisition of property, plant and equipment	(107)	(1,569)
Acquisition of intangible assets	(198)	(239)
Proceed from disposal of property, plant and equipment	-	2
Cash flows used in investing activities	6,421	7,936
Cash flows from financing activities
Issuance of debt net of financing fees	20,000	-
Financing fee	(282)	-
Options exercised	166	540
Cash flows generated by financing activities	19,884	540
Increase in cash and cash equivalents	4,917	5,346
Cash and cash equivalents at the beginning	8,044	2,698
Cash and cash equivalents at the end	12,961	8,044

Consolidated Statements of Cash Flows
(Unaudited, IFRS Basis, in thousands of US dollars)
Three-month period ended December 31, 2018, compared to the three-month period ended December 31, 2017:
	Q4-2018	Q4-2017
	$	$
Cash flows from operating activities
Net loss	(2,676)	(1,449)
Adjustments for:
Depreciation and amortization	235	251
Loss on write-down of property, plant and equipment	384	6
Loss on write-down of intangible assets	98	-
Loss on write-down of inventories	544	-
Current and Deferred income tax liabilities	(50)	(113)
Capitalized interest on long term debt	765	-
Gain on re-measurement at fair value on embedded derivative	(1,795)	-
Share-based compensation	369	301
Investment income	(42)	8
	(2,168)	(996)
Changes in non-cash operating working capital items	(894)	265
Interest received	43	57
Cash flows used in operating activities	(3,019)	(674)
Cash flows from investing activities
Acquisition of investments	-	(3,440)
Disposal of investments	-	5,077
Acquisition of property, plant and equipment	(10)	(513)
Acquisition of intangible assets	(96)	(50)
Cash flows used in investing activities	(106)	1,074
Cash flows from financing activities
Financing fee	4	-
Cash flows generated by financing activities	4	-
Increase (decrease) in cash and cash equivalents	(3,121)	400
Cash and cash equivalents at the beginning	16,082	7,644
Cash and cash equivalents at the end	12,961	8,044

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:	Thursday, March 28, 2019
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:	3932989

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 Danielle Ste-Marie, Ste-Marie Strategy & Communications Inc., Tel: [phone]  

Other interested parties may listen to the live webcast of the conference call at https://event.on24.com/wcc/r/1950265/F70721F46E344D3AB217AD37866C4EE2 which will be available for replay in the Investors section of the Company's website at www.tso3.com.  

Fourth Quarter and Fiscal 2018 Results Disclosure

The 2018 Annual Report is available on TSO₃'s website at www.tso3.com and full 2018 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 long, multi-channel flexible endoscopes (with a maximum of four channels) of up to 3.5 meters in length - 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 www.tso3.com.

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 evolution in customer demand for the Company's products and services, the plans for sales and marketing including the fact that the Company's customers may not commit to any purchases, 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, 2018, 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: Danielle Ste-Marie, Ste-Marie Strategy & Communications Inc., Tel: [phone], Email: [email protected]

Related Links

http://www.tso3.com