ECO EcoSynthetix Inc

BURLINGTON, ON, May 6, 2024 /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 (Q1 2024) ended March 31, 2024. Financial references are in U.S. dollars unless otherwise indicated.

Highlights
(Comparison periods in each case are the three months ended March 31, 2023)

• Recorded net sales of $4.7 million, up 53%, compared to the prior period.
• Recorded an Adjusted EBITDA¹ loss of $0.5 million, an improvement of $0.1 million from the prior period.
• Extended its exclusive relationship with Dow with a five-year contract renewal which reinforces the Company's commitment to innovative bio-based solutions in the personal care end market.
• Shipped $0.3 million of SurfLock™ for an extended trial in pulp applications with a leading paper and pulp producer.
• A leading international retailer backward integrated as a producer of particleboard, identified the use of bio-based glues in one of its particleboard factories in 2023 as a milestone that will impact its future carbon footprint. Today, 5% of the climate footprint of the total value chain of this leading international retailer is connected to the use of glue in its board materials.
• Commissioned the new manufacturing line in Burlington, Ontario. By internalizing production, the Company improves its ability to launch new products and reduce supply chain management risk.
• Received the Platinum designation for the third consecutive year from EcoVadis, a globally recognized agency for business sustainability ratings of supply chains, by scoring within the top 1% of the 125,000 companies rated.
• Maintained a strong balance sheet with cash and term deposits of $33.7 million as at March 31, 2024.
• Purchased and cancelled 165,900 common shares in Q1 2024 under the normal course issuer bid for total consideration of $0.6 million.

"Higher demand in our key end markets drove improved volumes. This led to a rebound in sales and an improvement in our bottom line and positive cash flow from operating activities in the quarter," said Jeff MacDonald, CEO of EcoSynthetix. "Our key commercial priority is expanding within our strategic accounts in wood composites and pulp-based products. Trial activity remains strong at both existing accounts trialing on new lines as well as with new prospects, including the largest trial in our history with a major pulp producer. In the wood composites market, the international retailer continues to raise awareness with its supply chain partners of the benefits of bio-based glue as a key driver to reduce the retailer's overall carbon footprint. Our DuraBind™ resin offers a powerful value proposition in replacing harmful formaldehyde with our lower carbon, bio-based solution at a comparable cost. In the tissue, packaging and pulp end market, our SurfLock™ strength aids offer manufacturers productivity improvements ranging from increased yields and strength to reduced cost depending on the application. We believe the pulp opportunity is comparable in scale to the wood composites opportunity. These two end markets, together with our relationship with Dow in the personal care space, position us for sustainable, long-term growth."

Financial Summary

Net Sales

Net sales were $4.7 million for Q1 2024 compared to $3.1 million for the corresponding period in 2023. The 53% increase was due to higher volumes, which increased sales $1.9 million, or 63%, partly offset by a lower average selling price which decreased sales $0.3 million or 10%. The higher volumes were primarily due to improved demand, including inventory replenishment at a distributor, as well as a $0.3 million sale of SurfLock™ for an extended trial in a pulp application with a leading paper and pulp producer. The lower average selling price was primarily due to lower manufacturing costs which were passed on to customers, as well as product mix.  

Gross Profit

Gross profit was $1.1 million for Q1 2024 compared to $0.6 million for the corresponding period in 2023. The increase was primarily due to higher volumes, partially offset by a lower average selling price.

Gross profit as a percentage of sales was 24.2% for Q1 2024 compared to 20.1% for the corresponding period in 2023. The increase was primarily due lower manufacturing depreciation offset by a lower average selling price. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 29.2% for Q1 2024 compared to 32.6% for the corresponding period in 2023.  The decrease was primarily due to a lower average selling price.  

Selling, General and Administrative

Selling, general and administrative expenses (SG&A) were $1.7 million for Q1 2024 compared to $1.3 million for the corresponding period in 2023. The increase was primarily due to $0.3 million asset relocation costs associated with the Company's manufacturing realignment strategy announced in February of 2023.

Research and Development

Research and development (R&D) costs were $0.4 million for Q1 2024 compared to $0.6 million in the corresponding period in 2023. The change was primarily due to lower product scale up costs in the 2024 period compared to investments made in the same period in 2023. R&D expense as a percentage of sales was 10% for Q1 2024 compared to 20% in the corresponding period in 2023. The Company's R&D efforts continue to focus on further enhancing value for our existing products and expanding addressable opportunities.

Adjusted EBITDA¹

Adjusted EBITDA loss was $0.5 million for Q1 2024 compared to $0.6 million in the corresponding period in 2023. The improvement was primarily due to higher gross profit offset by higher operating costs adjusted for non-cash items when compared to the prior period.

Net Loss

Net loss was $0.6 million, or $0.01 per common share, for Q1 2024 compared to $1.0 million, or $0.02 per common share, for the corresponding period in 2023. The improvement was primarily due to a lower loss from operations of $0.2 million and an increase in net interest income of $0.2 million. The higher net interest income during the period was due to an increase in interest rates on cash and term deposits.

Liquidity

Cash on hand and term deposits were $33.7 million as at March 31, 2024 compared to $33.3 million as at December 31, 2023. The Company purchased and cancelled 165,900 common shares under the NCIB during Q1 2024.

Notice of Conference Call

EcoSynthetix will host a conference call Tuesday, May 7, 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 instantly join the call by phone, by following the URL https://emportal.ink/3VYflox to easily register and be connected into the conference call automatically or the conventional method by dialling (416) 764-8659 or (888) 664-6392 with the conference identification of 87437327. 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 or https://app.webinar.net/5rAEQbDelRW. 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, gain or loss on disposals of property, plant and equipment and other non-cash expenses and charges deducted in determining consolidated net income (loss).

The following table reconciles net loss to Adjusted EBITDA loss for the three months ended March 31, 2024, and March 31, 2023:

About EcoSynthetix Inc. (www.ecosynthetix.com)
EcoSynthetix offers a range of sustainable engineered biopolymers that allow customers to reduce their use of harmful materials, such as formaldehyde and styrene-based chemicals. The Company's flagship products, DuraBind™, Surflock™, Bioform™, and EcoSphere®, are used to manufacture wood composites, personal care, paper, tissue and packaging products, and enable performance improvements, economic benefits and carbon footprint reduction. 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 plans to execute its commercial strategy, deliver meaningful growth across all three product categories, convert high-value strategic prospects into customers, and other statements regarding the Company's plans and expectations in 2024. 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 February 27, 2024. 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.