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Press release from CNW Group

EcoSynthetix Reports 2013 Third Quarter Results

Tuesday, November 05, 2013

EcoSynthetix Reports 2013 Third Quarter Results

18:30 EST Tuesday, November 05, 2013

BURLINGTON, ON, Nov. 5, 2013 /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, 2013. Financial references are in U.S. dollars unless otherwise indicated.

Third Quarter 2013 Highlights

  • Net sales were $5.4 million for the three months ended September 30, 2013 (Q3 2013), compared to $5.9 million for the three months ended September 30, 2012 (Q3 2012)
  • Won five new customers year-to-date (YTD) and eight new customers in the last twelve months (LTM)
  • 25% growth in sales on a year-to-date basis
  • Launched new products within the paper and paperboard market
  • Accelerated the trials and testing on product development within the insulation and wood-based panel industries

"The opportunity for our EcoSphere biolatex binders remains as strong as ever," said John van Leeuwen, Chief Executive Officer of EcoSynthetix. "We are innovating in existing markets and trialing in new markets. We launched new products during the quarter with our paper and paperboard customers and we are accelerating the trials with our new product applications within the building materials industry."

Financial Summary

Net Sales

Net sales for the three months ended September 30, 2013 (Q3 2013) were $5.4 million compared to $5.9 million for the three months ended September 30, 2012 (Q3 2012), a change of $0.5 million. The change was due to lower sales volume in Asia Pacific of $2.0 million and Europe/Middle East/Africa (EMEA) of $0.1 million, partly offset by higher sales volume in North America and Latin America of $1.4 million and $0.2 million, respectively.

Net sales for the year-to-date (YTD) period were $17.1 million compared to $13.6 million in the same period last year, an increase of $3.4 million or 25%. The increase in net sales is principally due to a $3.4 million sales increase in North America, a $0.9 million sales increase in EMEA and a $0.5 million sales increase in Latin America, which were partly offset by a $1.4 million decrease in sales in Asia Pacific.

EcoSynthetix has won eight new customers since Q3 2012. Collectively, these new customers accounted for 16% of net sales during the quarter and on a YTD basis.  These eight customers accounted for a 14% and 20% increase in sales during the three and nine months ended September 30, 2013 compared to the same period last year, respectively.

Sales to existing customers represented a 22% decrease and a 5% increase during the three and nine months ended September 30, 2013 compared to the same periods last year, respectively.  The decrease in sales to existing customers during the third quarter of fiscal 2013 was a result of lower sales in Asia Pacific.  Sales decreased in Asia Pacific due to the timing of inventory purchases by a distributor in this region in addition to unfavorable market dynamics caused by the global over-supply of butadiene and the related drop in butadiene and SB latex prices.

Gross Profit

Gross profit was $0.8 million or 15.5% of sales in Q3 2013 compared to $1.3 million or 21.6% of sales in the same period last year. The change in gross profit was principally due to higher manufacturing production costs, lower sales volume, increased corn starch costs and lower selling prices.

For the YTD period, gross profit was $2.7 million or 15.9% of sales compared to $2.7 million or 19.6% of sales in the same period last year. Increases in sales volume were offset by increased corn starch costs, lower selling prices, higher manufacturing production costs and increased manufacturing depreciation. The change in gross profit as a percentage of sales was principally due to increased corn starch costs, lower selling prices and higher manufacturing production costs.

Gross profit as a percentage of sales, adjusted for manufacturing depreciation, was 20.4% and 20.8% for Q3 2013 and YTD, respectively, compared with 26.2% and 24.7% for the corresponding periods last year.

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 $2.8 million in Q3 2013 compared to $2.6 million in the same period last year. For the YTD period, SG&A costs were $8.7 million compared to $7.3 million for the same period last year. The change was principally due to increased headcount.

Research and Development

Research and development (R&D) costs were $1.4 million in Q3 2013 compared to $0.8 million for the same period last year. For the YTD period, R&D costs were $3.9 million compared to $2.9 million for the same period last year. R&D is a key focus of EcoSynthetix to enhance its bio-based material product portfolio and expand into new applications and markets. The increase in R&D expenses reflects the Company's ongoing investment in product development and innovation.

Adjusted EBITDA1

Adjusted EBITDA was ($3.2) million in Q3 2013, compared to $(1.8) million in the same period last year. For the YTD period, adjusted EBITDA was ($9.2) million compared to ($6.8) million in the same period last year. The increase in adjusted EBITDA loss was primarily due to higher operating expenses including SG&A and R&D.

Net Loss

Net loss in Q3 2013 was $4.0 million, or $0.07 per common share (basic and fully diluted), compared to a net loss of $2.3 million, or $0.04 per common share (basic and fully diluted), for same period last year. For the YTD period, net loss was $11.1 million, or $0.20 per share (basic and fully diluted) compared to $8.0 million or $0.15 per share (basic and fully diluted) in the prior period.

Liquidity

Working capital was $90.5 million at September 30, 2013, compared to working capital of $100.2 million at December 31, 2012.  The change was principally due to cash utilized in operating and investing activities.

Notice of Conference Call

EcoSynthetix will host a conference call on Wednesday, November 6, 2013, 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 dialing (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, 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 2013 and Q3 2012:

         
  Three months ended
  September 30, 2013 September 30, 2012
Net loss     (3,960,546)     (2,324,278)
Depreciation and amortization         387,337 320,883
Share-based compensation 477,000 285,000
Interest Income          (90,675)          (85,727)
Adjusted EBITDA (1)     (3,186,884)     (1,804,122)

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 28, 2013. 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.

 

EcoSynthetix Inc.       
Interim Consolidated Balance Sheet      
(Expressed in U.S. dollars), unaudited      
       
  As at
September 30,
2013
  As at
December 31,
2012
       
Assets      
Current assets      
  Cash 83,908,774   93,260,296
  Accounts receivable  3,841,001   4,309,355
  Inventory 7,270,598   6,822,619
  Government grants receivable 180,949   184,118
  Prepaid expenses 354,041   154,492
  95,555,363   104,730,880
       
Non-current assets      
Intangible assets 141,840   163,501
Property, plant and equipment  13,212,664   13,174,416
Total assets 108,909,867   118,068,797
       
       
Liabilities       
       
Current liabilities      
  Accounts payable and accrued liabilities  5,013,775   4,282,296
  Deferred government grant -   226,920
  5,013,775   4,509,216
       
Shareholders' Equity      
Common shares  492,557,906   492,065,820
Contributed surplus 7,804,503   6,831,354
Accumulated deficit (396,466,317)   (385,337,593)
Total shareholders' equity  103,896,092   113,559,581
       
Total shareholders' equity and liabilities 108,909,867   118,068,797

 


EcoSynthetix Inc.               
Interim Consolidated Statement of Operations and Loss              
(Expressed in U.S. dollars, unless otherwise noted), unaudited              
               
               
   Three months ended September 30,     Nine months ended September 30,
  2013   2012   2013   2012
               
Net sales 5,416,621   5,915,571   17,070,777   13,628,684
Cost of sales 4,579,748   4,635,044   14,357,296   10,963,579
Gross profit on sales 836,873   1,280,527   2,713,481   2,665,105
               
Expenses              
  Selling, general and administrative 3,450,071   2,858,091   10,175,132   8,112,548
  Research and development 1,438,023   832,441   3,936,976   2,863,938
  4,888,094   3,690,532   14,112,108   10,976,486
Loss from operations (4,051,221)   (2,410,005)   (11,398,627)   (8,311,381)
               
Interest income 90,675   85,727   269,903   275,003
               
               
Net loss and comprehensive loss (3,960,546)   (2,324,278)   (11,128,724)   (8,036,378)
               
               
Basic and diluted loss per common share  (0.07)   (0.04)   (0.20)   (0.15)
Weighted average number of common shares outstanding 55,764,273   55,324,997   56,026,829   55,273,916

 

 

EcoSynthetix Inc.             
Interim Consolidated Statements of Cash Flows            
(Expressed in U.S. dollars), unaudited            
   Three months ended September 30,       Nine months ended September 30,
  2013 2012     2013 2012
Cash provided by (used in)            
             
Operating activities            
Net loss and comprehensive loss (3,960,546) (2,324,278)     (11,128,724) (8,036,378)
Items not affecting cash            
  Depreciation and amortization  387,337 320,883     1,134,941 822,815
  Share-based compensation  477,000 285,000     1,093,979 702,104
Changes in non-cash working capital            
  Accounts receivable 739,527 (1,695,334)     468,354 (1,349,326)
  Inventory 387,133 899,309     (329,435) 2,740,832
  Government grants receivable (4,429) 188,579     3,169 201,468
  Prepaid expenses 34,993 (32,577)     (199,549) (31,542)
  Accounts payable and accrued liabilities 1,309,383 474,414     1,189,479 (648,533)
  Deferred government grant  (82,918) 224,023     (226,920) 224,023
  (712,520) (1,659,981)     (7,994,706) (5,374,537)
             
Investing activities            
Cash used for purchase of intangible assets, property, plant and equipment (485,137) (626,805)     (1,728,072) (5,344,799)
             
Financing activities            
Repurchase of common shares - (521,729)     - (521,729)
Exercise of common share options 33,260 123,463     275,957 141,784
Exercise of warrants 95,299       95,299 -
  128,559 (398,266)     371,256 (379,945)
             
Change in cash during the period  (1,069,098) (2,685,052)     (9,351,522) (11,099,281)
             
Cash - Beginning of period 84,977,872 97,299,476     93,260,296 105,713,705
Cash - End of period  83,908,774 94,614,424     83,908,774 94,614,424

 



 

SOURCE: EcoSynthetix Inc.

For further information:

EcoSynthetix Inc.
John van Leeuwen
Chief Executive Officer
Phone: (289) 288-5010
E-mail: jvanleeuwen@ecosynthetix.com

Investor Relations
Ross Marshall
TMX Equicom
Phone: (416) 815-0700 (Ext.238)
E-mail: rmarshall@tmxequicom.com

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