BURLINGTON, ON, May 3, 2022 /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 2022) ended March 31, 2022. Financial references are in U.S. dollars unless otherwise indicated.
Highlights (Comparison periods in each case are the three months ended March 31, 2021)
Recorded net sales of $4.2 million in Q1 2022, up 15%, due to higher average selling price of 32% partly offset by lower volumes of 17%
Continued diversification of revenue mix as wood composites and personal care represented a greater proportion of revenue which supported an improved margin profile despite inflationary pressures
Gross profit of $1.1 million, up 44%, in Q1 2022, enabled by the higher average selling price
Recorded an Adjusted EBITDA loss of $0.2 million in Q1 2022, an improvement from the $0.3 million loss recorded in the prior period
Purchased and cancelled 137,100 common shares in Q1 2022 under the normal course issuer bid for total consideration of $0.6 million
Maintained a strong balance sheet with cash and term deposits of $39.9 million as at March 31, 2022
"The good progress we are making in our diversification strategy, with growth within the wood composites and personal care applications of our bio-based resins, was impeded by diminished demand within graphic paper as well as supply chain and logistics challenges in the quarter," said Jeff MacDonald, CEO of EcoSynthetix. "The progress and volumes with our key strategic wood composites account continue to build and make up a more meaningful share of our revenue mix. In the face of inflationary pressures we are protecting price as incumbent technologies see higher prices due to commodity pricing. We are building a strong book of business across our wood composites, wet-end paper and personal care applications, each of which are strong tailwinds for our business. Securing sufficient raw material supply to meet our growing demand continues to be challenging and we are actively working with vendors to ensure supply. Based on the feedback from our customers and their ordering patterns, it's clear that the market is moving to us. As consumers, retailers and manufacturers increasingly pursue green chemistries, our proprietary biopolymer technologies are well positioned for long-term, sustainable success."
Financial Summary
Net Sales
Net sales were $4.2 million for Q1 2022 compared to $3.7 million for the same period in 2021. The increase was due to higher average selling price which increased sales by $1.2 million, or 32%. This improvement was partly offset by lower sales volumes which reduced sales $0.6 million, or 17%. The decrease in volumes was due to customer inventory rationalization and unfavorable market conditions in graphic paper, including 22% lower volumes related to the closure of a paper mill that was announced in the third quarter of 2021.
Gross Profit
Gross profit was $1.1 million for Q1 2022 compared to $0.8 million for the same period in 2021. The increase was due to a higher average selling price which was partly offset by lower sales volumes and higher manufacturing costs.
Gross profit as a percentage of sales was 25.5% for Q1 2022 compared to 20.5% for the same period in 2021. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 28.9% for Q1 2022 compared to 26.0% for the same period in 2021. The increases were primarily due to a higher average selling price partly offset by higher manufacturing costs.
Selling, General and Administrative
Selling, general and administrative expenses (SG&A) were $1.3 million for Q1 2022 compared to $1.2 million for the same period in 2021. The increase in SG&A was primarily due to lower payments received under the Canadian Emergency Wage Subsidy program (CEWS) of $0.1 million.
Research and Development
Research and development (R&D) costs were $0.4 million for Q1 2022 compared to $0.3 million for the same period in 2021. The increase in R&D expenses was primarily due to lower government support payments received of $0.1 million. R&D expense as a percentage of sales was 10% for Q1 2022 compared to 9% in the same period 2021. 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 $0.2 million for Q1 2022 compared to $0.3 million for the same period in 2021. The $0.1 million improvement was primarily due to higher gross profit which was partly offset by higher operating costs.
Net Loss
Net loss was $0.7 million, or $0.01 per common share for Q1 2022, which is comparable to the same period in 2021.
Liquidity
Cash on hand and term deposits were $39.9 million as at March 31, 2022, compared to $42.2 million cash on hand as at December 31, 2021. The Company purchased $20.0 million of term deposits during the period. The Company also purchased and cancelled 137,100 common shares for consideration of $0.6 million under the normal course issuer bid in Q1 2022.
Notice of Conference Call
EcoSynthetix will host a conference call Wednesday, May 4, 2022, 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 join the call by dialling (416) 764-8659 or (888) 664-6392 with the conference identification of 30798447. 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. 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, 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, 2022 and March 31, 2021:
Three months ended March 31, 2022
Three months ended March 31, 2021
Net Loss
(658,892)
(749,884)
Depreciation
232,552
360,126
Share-based Compensation
271,966
119,477
Interest Income
(32,487)
(25,941)
Adjusted EBITDA loss
(186,861)
(296,222)
About EcoSynthetix Inc. (www.ecosynthetix.com)
EcoSynthetix, a 2022 climate positive company, 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™, Bioform™, and EcoSphere®, are used to manufacture wood composites, personal care, and paper and packaging, 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 2022. 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 24, 2022. 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 Sheets
(expressed in US dollars)
March 31, 2022
December 31, 2021
Assets
Current assets
Cash
19,903,462
42,226,816
Term deposits
5,006,616
-
Accounts receivable
1,903,581
1,912,390
Inventory
2,912,881
2,073,800
Government grants receivable
13,396
6,676
Prepaid expenses
46,855
91,930
29,786,791
46,311,612
Non-current assets
Term deposits
15,039,321
-
Property, plant and equipment
4,441,025
4,670,089
19,480,346
4,670,089
Total assets
49,267,137
50,981,701
Liabilities
Current liabilities
Trade accounts payables and accrued liabilities
1,705,291
2,363,630
Non-current liabilities
Lease liability
764,359
820,045
Total liabilities
2,469,650
3,183,675
Shareholders' Equity
Common shares
491,846,924
492,297,041
Contributed surplus
9,960,461
9,851,991
Accumulated deficit
(455,009,898)
(454,351,006)
Total shareholders' equity
46,797,487
47,798,026
Total liabilities and shareholders' equity
49,267,137
50,981,701
EcoSynthetix Inc.
Interim Consolidated Statements of Operations and Comprehensive Loss
For the three months ended March 31, 2022 and 2021
(expressed in US dollars)
Three months ended March 31,
2022
2021
Net sales
4,237,955
3,673,447
Cost of sales
3,157,915
2,921,358
Gross profit on sales
1,080,040
752,089
Expenses
Selling, general and administrative
1,340,685
1,198,989
Research and development
430,734
328,925
1,771,419
1,527,914
Loss from operations
(691,379)
(775,825)
Net interest income
32,487
25,941
Net loss and comprehensive loss
(658,892)
(749,884)
Basic and diluted loss per common share
(0.01)
(0.01)
Weighted average number of common shares outstanding
58,913,708
57,247,344
EcoSynthetix Inc.
Interim Consolidated Statements of Cash Flows
For the three months ended March 31, 2022 and 2021
EcoSynthetix Inc. is a Canada-based renewable chemicals company that specializes in biomaterials used in a variety of end products. The Company offers a range of sustainable engineered biopolymers that allow customers to reduce their use of harmful materials, such as formaldehyde and styrene-based chemicals. It is engaged in the development and commercialization of environmentally friendly, bio-based technologies as replacement solutions for synthetic, petrochemical-based adhesives and other related products in the Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific. It operates in one segment: the biopolymer nanosphere technology platform. The Company's products include EcoSphere biopolymers, EcoMer biomonomers, EcoStix bio-based pressure-sensitive adhesives, and DuraBind bioresins. The DuraBind and EcoSphere, are used to manufacture wood composites, paper, and packaging. Its serves to the markets, such as paper and paperboard, building materials, and other markets.
ECOSYNTHETIX INC. 
