TSO3 Reports Record First Quarter 2017 Results

QUEBEC CITY, May 10, 2017 /CNW Telbec/ - TSO₃ Inc. (TSX: TOS), an innovator in sterilization technology for medical devices in healthcare settings, reported financial results for its first fiscal quarter 2017 ended March 31, 2017. 

First Quarter 2017 Financial Summary

• Revenue increased to a record $4.2 million, a 13.5% sequential increase over the $3.7 million recorded in the fourth quarter of 2016 and a 35% increase over the $3.1 million recorded in the first quarter of 2016. The Company shipped 36 STERIZONE^® VP4 Sterilizers, along with associated accessories and consumables, to Getinge Infection Control, its exclusive global distributor, in the first quarter of 2017.

• Gross profit on an IFRS basis was $1.6 million, or 37% of revenue, which compares non-IFRS gross profit of $1.3 million, or 36% of revenue, in the fourth quarter of 2016 and an IFRS gross profit of $1.1 million, or 36% of revenue in the first quarter of 2016. The Company experienced improvements in sterilizer production costs, and sales growth of higher-gross margin consumables in the first quarter of 2017 relative to prior periods. IFRS gross profit in the fourth quarter of 2016 was $1.0 million and includes a one-time write-off of $0.3 million for obsolete raw materials inventory.

• Research and Development (R&D) expense grew to $1.4 million, as compared to $1.3 million in the fourth quarter of 2016 and $0.6 million in the year-ago quarter.

• Sales, General and Administrative (SG&A) expense was $2.2 million, which compares to $1.8 million in the fourth quarter of 2016 and $1.4 million in the first quarter of 2016. $0.3 million of the increase from Q4 2016 to Q1 2017 related to additional non-cash stock compensation expense.

• The Company's IFRS net loss was $(2.0) million or $(0.02) per share in the first quarter of 2017 and compares to non-IFRS net losses of $(1.8) million or $(0.02) per share in the fourth quarter of 2016 and $(0.9) million, or $(0.01) per share, in the first quarter of 2016. On an IFRS basis, the Company reported a net loss of $(2.1) million or $(0.02) per share in the fourth quarter of 2016 and a net profit of $0.6 million, or $0.01 per share, in the first quarter of 2016.

• The Company had $19.6 million in cash, cash equivalents and investments and no debt as at March 31, 2017, as compared to $19.3 million and no debt at the end of 2016.

Management Commentary

"We are pleased with our first quarter 2017 results as we continue to expand our business in North America and EMEA," said TSO₃ President and CEO, R.M. (Ric) Rumble. "We continue to see solid progress with manufacturing, sales, installations and end customer utilization of our industry leading technology into hospitals. We continue to support Getinge in North America, Europe and other international markets, including leveraging the traction we are gaining within the flexible endoscope reprocessing area of healthcare facilities. This includes implementing complete transitions away from traditional high level disinfection practices in favour of our low-temperature terminal sterilization solution in cleared markets and preparation to pursue expanded regulatory claims for duodenoscopes in the United States."

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.

In 2016, management began assessing its operational performance using supplemental non-IFRS statement of income which removes typically one-time unusual items that do not reflect the recurring and ongoing operational results and trends. The results of the associated adjustments in 2016 included the removal of a one-time expense associated with a commitment to purchase of raw materials made in the year but made obsolete by adjustments and improvements in installation alternatives in response to feedback from end customers, and a one-time foreign exchange gain recorded in the first quarter of 2016, which resulted in the calculation of adjusted gross profit, adjusted EBITDA and adjusted net income.

	2017	2016
	Q1	Q1	Adjust- ment^(1)	Q1	Q2	Q3	Q4	Adjust- ment^(1)	Q4
$000's	IFRS	IFRS		Non- IFRS	IFRS	IFRS	IFRS		Non- IFRS
Revenues	4,211	3,071	-	3,071	2,977	3,507	3,746	-	3,746
Cost of Goods Sold	2,641	1,961	-	1,961	2,143	2,368	2,716	(312)	2,404
Gross Profit	1,570	1,110	-	1,110	834	1,139	1,030	(312)	1,341
Gross Margin	37%	36%	-	36%	28%	32%	28%	(8%)	36%
R&D	1,353	606	-	606	803	806	1,297	-	1,297
SGA	2,209	1,385	-	1,385	1,529	1,841	1,774	-	1,774
Financial	(39)	(1,588)	1,578	(10)	-	(50)	(21)	-	(21)
Net Income (loss) before tax	(1,953)	707	(1,578)	(871)	(1,499)	(1,458)	(2,020)	(312)	(1,708)
Tax	27	58	-	58	(12)	15	48	-	48
Net Income (loss)	(1,980)	649	(1,578)	(929)	(1,487)	(1,473)	(2,068)	(312)	(1,756)
Net Income (loss) per share	(0.02)	0.01	(0.02)	(0.01)	(0.02)	(0.02)	(0.02)	0.00	(0.02)
Adjusted Ebitda	(1,176)	1,000	(1,578)	(578)	(1,128)	(977)	(1,614)	(312)	(1,302)

 ⁽¹⁾ Refer to the Non-IFRS financial measures.

Non-IFRS cost of goods sold, non-IFRS gross profit and non-IFRS gross margin in 2016 were impacted in Q4-2016 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.

Non-IFRS financial income in Q1-2016 was impacted by the one-time foreign exchange gain realized of $1.6 million 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) amortization and depreciation expenses (3) share-based compensation expense, (4) amortization or write-downs of certain tangible and intangible assets, (5) one-time write-off of inventory, (6) income taxes, and (7) other significant unusual items.

  

Summary of Results
Periods ended March 31 (Unaudited, IFRS Basis, in thousands of US dollars, except per share amounts)
		First Quarter
		2017 $	2016 $
Revenues		4,211	3,071
Cost of sales		2,641	1,961
		1,570	1,110
Expenses
	Research and development	1,353	606
	Selling, general and administrative	2,209	1,385
	Financial expenses (income)	(39)	(1,588)
Total Expenses		3,523	403
Net income (loss) before income taxes		(1,953)	707
Income taxes		27	58
Net income (loss) and total comprehensive income (loss)		(1,980)	649
Basic and diluted net income (loss) per share (in $)		(0.02)	0.01
Basic and diluted net comprehensive income (loss) per share (in $)		(0.02)	0.01

Consolidated Statements of Financial Position
(Unaudited, IFRS Basis, in thousands of US dollars)
		March 31, 2017 $	December 31, 2016 $
Current Assets
	Cash and Cash Equivalents	5,086	2,698
	Short-term Investments	14,504	15,064
	Accounts Receivable	507	2,318
	Inventories	2,075	1,703
	Prepaid Expenses	190	102
		22,362	21,885
Non-current Assets
	Long-term Investments	-	1,498
	Property, Plant and Equipment	2,427	2,357
	Intangible Assets	1,920	1,836
		4,347	5,691
		26,709	27,576
Current Liabilities
	Accounts Payable and Accrued Liabilities	2,748	2,272
	Warranty Provision	728	575
	Deferred Revenues	1,083	1,004
		4,559	3,851
Non-current Liabilities
	Deferred Income Tax Liabilities	136	109
	Deferred Revenues	5,651	5,945
		10,346	9,905
Equity
	Share Capital	110,515	110,406
	Reserve – Share-based Compensation	5,272	4,709
	Deficit	(97,712)	(95,732)
	Accumulated Other Comprehensive Loss	(1,712)	(1,712)
		16,363	17,671
		26,709	27,576

Consolidated Statements of Cash Flows
As of March 31, 2017 and 2016 (Unaudited, IFRS Basis, in thousands of US dollars)
		First Quarter
		2017 $	2016 $
Cash flows from operating activities
Net income (loss)		(1,980)	649
Adjustments for:
	Depreciation and amortization	168	77
	Deferred income tax liabilities	27	-
	Share-based compensation	609	216
	Investment income	(75)	(38)
		(1,251)	904
	Changes in non-cash operating working capital items	1,765	(1,656)
	Interest received	41	29
Cash flows generated by (used in) operating activities		555	(723)
Cash flows from investing activities
	Acquisition of investments	(1,412)	(2,000)
	Disposal of short-term investments	3,504	2,466
	Acquisition of property, plant and equipment	(193)	(102)
	Acquisition of intangible assets	(129)	(55)
Cash flows generated by investing activities		1,770	309
Cash flows from financing activities
	Options exercised	63	-
	Warrants exercised	-	10,145
Cash flows generated by financing activities		63	10,145
Increase in cash and cash equivalents		2,388	9,731
Cash and cash equivalents at the beginning		2,698	12,654
Cash and cash equivalents at the end		5,086	22,385
Investments at the end		14,504	2,000
Total cash, cash equivalents and investments at the end		19,590	24,385

Annual General Meeting of Shareholders

TSO₃ will also hold its Annual Meeting of shareholders at 10:30 a.m. (EDT) today. The meeting will be held at the McCord Museum in Montreal. TSO₃ President and CEO, R.M. (Ric) Rumble and CFO, Glen Kayll will host the meeting, where management will also discuss its first quarter 2017 financial results and provide an operational update, followed by a question and answer period.

The meeting will be webcast live and available for replay at http://event.on24.com/r.htm?e=1383427&s=1&k=26BB6E3FB663B27C9D25F93D0DBD1D4C  and via the Investors section of the Company's website 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 (including, without limitation, those regarding the timing or outcome of TSO₃'s sales, business or operations) are forward-looking statements that involve certain risks, uncertainties and hypotheses, including, but not limited to, the ability of the Company to obtain the required regulatory clearance to market its products on a worldwide basis; 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, 2016, 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.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful.

SOURCE TSO3 Inc.

Company Contacts: TSO3 Inc., R.M. (Ric) Rumble, President and CEO, Tel: [phone], Email: [email protected]; TSO3 Inc., Glen Kayll, CFO, Tel: [phone], Email: [email protected]; Investor Relations: Capital Market Access LLC, Ron Both, 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