ECO EcoSynthetix Inc

BURLINGTON, ON, Nov. 4, 2014 /CNW/ - EcoSynthetix Inc. (TSX:ECO) ("EcoSynthetix" or the "Company"), a renewable chemicals company that produces a family of commercially proven bio-based products, today announced its financial results for the three and nine months ended September 30, 2014. Financial references are in U.S. dollars unless otherwise indicated.

Third Quarter 2014 Highlights

• Net sales of $4.8 million for the three months ended September 30, 2014, compared to $5.4 million for the same period last year
• Won one new customer during the quarter and three new customers YTD
• Introduced new grades of EcoSphere^® paper coatings specifically formulated for high-speed inkjet printing at GraphExpo14
• We were awarded $2 million in grant funding from the Bioproducts cluster program, developed by Bioindustrial Innovation Canada, to accelerate the commercialization of new bio-based technology platforms
• Retired 138,000 common shares ($0.2 million) during the period and 356,000 common shares ($0.7 million) year to date through its normal course issuer bid

"Despite challenges in the paper market, our new grade of EcoSphere biolatex has strengthened our sales pipeline with new prospects and multiple existing customers are now using it," said John van Leeuwen, Chief Executive Officer of EcoSynthetix. "Our market opportunity remains as large as ever. To achieve the growth we expect of the business, we are focused on converting mill trials with our new paper binder grades into customers and accelerating the commercialization of our new products that target the wood composites and insulation markets."

Financial Summary

Net Sales

Net sales for the three months ended September 30, 2014 (Q3 2014) were $4.8 million compared to $5.4 million for the three months ended September 30, 2013 (Q3 2013), a decrease of 11%.  The change in sales was primarily due to a reduction in volume of $0.9 million due to the closure of a paper mill in North America announced by FutureMark Paper during the current quarter, in addition to the closure of a customer's coated paper production line in EMEA announced in the fourth quarter of the prior year.  These decreases were offset by higher volume at existing commercial accounts.

Net sales for the year-to-date (YTD) period were $14.4 million compared to $17.1 million in the same period last year, a decrease of 16%. The change was primarily attributable to lower sales volumes in EMEA of $1.9 million and Asia Pacific of $1.5 million, partly offset by an increase in sales volume in North America of $0.9 million. EcoSynthetix won one new customer in the Q3 2014 and three new customers year-to-date.

Gross Profit

Gross profit was $0.5 million or 10.2% of sales in Q3 2014 compared to $0.8 million or 15.5% in the same period last year. For the YTD period, gross profit was $2.4 million or 16.9% of sales compared to $2.7 million or 15.9% in the same period last year.  Gross profit in the current period was impacted by a $0.3 million charge to cost of sales related to shipments to FutureMark Paper which were not recognized as revenue during the third quarter since collection was not probable. 

Gross profit as a percentage of sales, adjusted for manufacturing depreciation and the $0.3 million charge to cost of sales, was 21.2% and 24.8% for Q3 2014 and YTD, respectively, compared with 20.4% and 20.8% in the same periods last year. The increase in gross profit during both periods was principally due to lower manufacturing costs as a result of lower feedstock costs partially offset by lower average selling price.

Selling, General and Administrative
(excludes share-based compensation, depreciation and amortization and foreign exchange loss or gain)

Selling, general and administrative (SG&A) costs were $3.0 million and $9.0 million for Q3 2014 and YTD, respectively, compared to $2.8 million and $8.7 million in the corresponding periods last year. The change in both periods was partially due to the recognition of an allowance for doubtful accounts of $0.4 million related to trade receivables owing from FutureMark Paper. This was partly offset by the favourable impact of the weakening Canadian dollar relative to the US dollar, lower employee related costs and decreased discretionary spending.

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

Research and development (R&D) costs were $1.2 million in Q3 2014, compared to $1.4 million in the same period last year. For the YTD period, R&D costs remained comparable to last year at $3.9 million. R&D is a key focus of EcoSynthetix, to enhance its bio-engineered product portfolio and expand into new applications and markets. The decrease was primarily due to lower discretionary costs.

Adjusted EBITDA¹ 

Adjusted EBITDA was $(3.6) million in Q3 2014, compared to $(3.2) million in the same period last year. For the YTD period, adjusted EBITDA was $(9.7) million compared to $(9.2) million in the same period last year.

Net Loss

Net loss in Q3 2014 was $4.0 million, or $0.07 per common share (basic and fully diluted), which was unchanged from the same period last year. For the YTD period, net loss was $11.1 million, or $0.19 per share (basic and fully diluted) compared to $11.1 million or $0.20 per share (basic and fully diluted) in the prior period.

Liquidity  

Working capital was $76.8 million at September 30, 2014 compared to working capital of $87.3 million at December 31, 2013. The decrease was principally due to cash utilized in operating and investing activities.

Notice of Conference Call

EcoSynthetix will host a conference call on Wednesday, November 5, 2014, at 8:30 AM ET to discuss its financial results.  John van Leeuwen, CEO, and Robert Haire, CFO, will co-chair the call. All interested parties can join the call by dialling (647) 427-7450 or (888) 231-8191. 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. 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 is not a recognized measure under IFRS and should not be considered as an alternative to operating income or net income as a measure of operating results or an alternative to cash flows as a measure of liquidity. Adjusted EBITDA is defined as consolidated net income (loss) before interest, income taxes, depreciation, amortization and other non-cash expenses deducted in determining consolidated net income (loss) before interest, income taxes, depreciation, amortization, other non-cash expenses and charges which include the movement in the unrealized gains and losses on the Company's redeemable preferred shares and warrants classified as financial liabilities prior to the initial public offering and share based compensation expense.

The following table reconciles net loss to Adjusted EBITDA for Q3 2014 and Q3 2013:

About EcoSynthetix Inc. (www.ecosynthetix.com)
EcoSynthetix Inc. is a renewable chemicals company specializing in bio-based products that can be used as inputs in industrial manufacturing for a wide range of consumer products. The Company's products offer a reduced carbon footprint and are marketed primarily on the basis of lower cost, stable pricing and equal or superior performance. EcoSynthetix's lead product, EcoSphere^® biolatex^® binders, is used commercially by a number of the global top 20 manufacturers in the coated paper and paperboard industry.

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. 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 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, 2014. 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.

SOURCE EcoSynthetix Inc.