EcoSynthetix Reports 2022 Second Quarter Results

BURLINGTON, ON, Aug 8, 2022 /CNW/ - EcoSynthetix Inc. 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 (Q2 2022) and six months (YTD 2022) ended June 30, 2022. Financial references are in U.S. dollars unless otherwise indicated.

Highlights 
(Comparison periods in each case are the three months ended June 30, 2021)

  • Recorded net sales of $4.2 million in Q2 2022, down 15%, due to lower volumes of 43%, partly offset by higher average selling price of 28%
  • Continued diversification of revenue mix as applications beyond traditional graphic paper represented a greater portion of revenue which supported an improved margin profile despite inflationary pressures
  • The Company's personal care joint development partner, Dow Chemical Company, announced an exclusive engagement with EcoSynthetix targeting the hairstyling market with MaizeCare™ Polymers, a bio-based and biodegradable technology that provides unique and high-performance benefits
  • Gross profit of $1.1 million, unchanged, enabled by the higher average selling price which offset a decline in sales volumes
  • Recorded an Adjusted EBITDA1 loss of $0.2 million in Q2 2022, unchanged from the prior period
  • Purchased and cancelled 90,500 common shares in Q2 2022 under the normal course issuer bid for total consideration of $0.4 million
  • Maintained a strong balance sheet with cash and term deposits of $39.4 million as at June 30, 2022
  • Named one of the Best 50 Corporate Citizens in Canada by Corporate Knights, ranking 20th overall in Corporate Knights' transparent, quantitative methodology that places equal emphasis on the ESG performance of a company's operations and the environmental impact of its core products

"Our diversification strategy into wood composites, personal care and wet-end paper strengthening aids made meaningful contributions to results in the quarter. We saw good progress across our key strategic wood composites account, the new wet-end paper application and in the MaizeCare offering during the quarter," said Jeff MacDonald, CEO of EcoSynthetix. "Sales volumes were impacted by challenging macro conditions which included supply chain and logistics constraints for raw materials, inflationary pressures and further deterioration of demand in the graphic paper market. The availability of raw materials and logistics constraints resulted in an estimated $0.5 million to $1 million impact to net sales in the quarter. While those constraints remain, we are seeing the first positive signals of a more balanced raw materials environment. The sustainability profile of our bio-based polymer technology, together with its compelling value and performance attributes are gaining greater interest across a diverse base of accounts which set the stage for long-term growth."     

Financial Summary

Net Sales

Net sales were $4.2 million and $8.4 million for Q2 2022 and YTD 2022, respectively, compared to $4.9 million and $8.6 million for the corresponding periods in 2021. The decreases were due to lower sales volumes partly offset by higher average selling price. The 15% decrease in the quarter was due to lower sales volumes of $2.1 million, or 43%, due to unfavorable market conditions in graphic paper and limited feedstock availability due to challenging supply chain conditions. This decline includes a $0.6 million headwind in the quarter related to the closure of a paper mill that was announced in the third quarter of 2021. These pressures were partially offset by higher selling price and improved product mix which increased sales $1.4 million, or 28%, as the Company was able to offset significant inflationary pressures with price increases.

Gross Profit

Gross profit was $1.1 million and $2.2 million for Q2 2022 and YTD 2022, respectively, compared to $1.1 million and $1.9 million for the corresponding periods in 2021. During both periods, a higher average selling price and an improved product mix was offset by decreases in sales volumes and higher manufacturing costs.

Gross profit as a percentage of sales was 26.8% and 26.1% for Q2 2022 and YTD 2022, respectively, compared to 22.5% and 21.6% for the corresponding periods in 2021. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 30.8% and 29.8% for Q2 2022 and YTD 2022, respectively, compared to 26.3% and 26.2% for the corresponding periods in 2021. The improvements in both periods were primarily due to a higher average selling price and an improved product mix partly offset by higher manufacturing costs.

Selling, General and Administrative

Selling, general and administrative expenses (SG&A) were $1.4 million and $2.7 million for Q2 2022 and YTD 2022, respectively, compared to $1.3 million and $2.5 million for the corresponding periods in 2021. The increase in SG&A during Q2 2022 was primarily due to higher operating costs of $0.3 million including lower payments received under the Canadian Emergency Wage Subsidy program (CEWS), foreign exchange loss and increased discretionary spend, which was partially offset by a reduction in the provision for variable compensation of $0.2 million.

Research and Development

Research and development (R&D) costs were $0.5 million and $0.9 million for Q2 2022 and YTD 2022, respectively, which were in line with $0.6 million and $0.9 million in the corresponding periods in 2021. R&D expense as a percentage of sales were 12% and 11% for Q2 2022 and YTD 2022, respectively, compared to 11% and 10% in the corresponding periods in 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 and $0.4 million for Q2 2022 and YTD 2022, respectively, which was in line with $0.2 million and $0.5 million during the corresponding same periods in 2021. The improvements were due to higher gross profit in both periods partly offset by higher operating costs which resulted in negligible changes compared to the prior year periods.

Net Loss                     

Net loss was $0.7 million, or $0.01 per common share, and $1.3 million, or $0.02 per common share, for Q2 2022 and YTD 2022, respectively, compared to $0.7 million, or $0.01 per common share, and $1.5 million, or $0.03 per common share, for the corresponding periods in 2021. The change in the YTD period was primarily due to lower loss from operations and higher interest income.

Liquidity

Cash on hand and term deposits were $39.4 million as at June 30, 2022, compared to $42.2 million as at December 31, 2021. The Company purchased and cancelled 90,000 and 227,600 common shares under the normal course issuer bid during the Q2 2022 and YTD 2022 periods, respectively, for consideration of $0.4 million and $1.0 million.

Notice of Conference Call

EcoSynthetix will host a conference call Tuesday, August 9, 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 (647) 484-0475 or (888) 394-8218 with the conference identification of 9879897. 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 and six months ended June 30, 2022 and June 30, 2021:


Three months ended
June 30, 2022

Three months ended
June 30, 2021

Six months ended
June 30, 2022

Six months ended
June 30, 2021

Net Loss

(676,828)

(729,097)

(1,335,720)

(1,478,981)

Depreciation

280,307

338,417

512,859

698,543

Share-based Compensation            

251,301

227,485

523,267

346,962

Interest Income

(82,499)

(15,669)

(114,986)

(41,610)

Adjusted EBITDA loss

(227,719)

(178,864)

(414,580)

(475,086)

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 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)










June 30,
2022

December 31,
2021

Assets






Current assets



Cash

19,292,852

42,226,816

Term deposits

5,015,343

-

Accounts receivable 

1,703,506

1,912,390

Inventory

2,768,728

2,073,800

Government grants receivable

16,554

6,676

Prepaid expenses

163,303

91,930


28,960,286

46,311,612




Non-current assets



Term deposits

15,091,178

-

Property, plant and equipment 

4,342,153

4,670,089


19,433,331

4,670,089




Total assets

48,393,617

50,981,701







Liabilities 






Current liabilities



Trade accounts payables and accrued liabilities                          

1,736,579

2,363,630




Non-current liabilities 



Lease liability

673,681

820,045




Total liabilities

2,410,260

3,183,675

Shareholders' Equity



Common shares 

491,458,321

492,297,041

Contributed surplus

10,211,762

9,851,991

Accumulated deficit

(455,686,726)

(454,351,006)

Total shareholders' equity 

45,983,357

47,798,026




Total liabilities and shareholders' equity 

48,393,617

50,981,701

EcoSynthetix Inc. 






Interim Consolidated Statements of Operations and Comprehensive Loss






For the three and six months ended June 30, 2022 and 2021






(expressed in US dollars)

















 Three months ended June 30, 


 Six months ended June 30, 


2022

2021


2022

2021







Net sales

4,167,838

4,897,107


8,405,793

8,570,554







Cost of sales

3,050,353

3,794,621


6,208,268

6,715,979







Gross profit on sales

1,117,485

1,102,486


2,197,525

1,854,575







Expenses






Selling, general and administrative

1,375,381

1,294,822


2,716,066

2,493,811

Research and development

501,431

552,430


932,165

881,355


1,876,812

1,847,252


3,648,231

3,375,166







Loss from operations

(759,327)

(744,766)


(1,450,706)

(1,520,591)







Net interest income

82,499

15,669


114,986

41,610







Net loss and comprehensive loss

(676,828)

(729,097)


(1,335,720)

(1,478,981)







Basic and diluted loss per common share 

(0.01)

(0.01)


(0.02)

(0.03)







Weighted average number of common shares outstanding

58,855,891

57,241,838


58,895,397

57,248,524

EcoSynthetix Inc. 






Interim Consolidated Statements of Cash Flows






For the three and six months ended June 30, 2022 and 2021






(expressed in US dollars)


















 Three months ended June 30, 


 Six months ended June 30, 


2022

2021


2022

2021

Cash provided by (used in)












Operating activities






Net loss and comprehensive loss

(676,828)

(729,097)


(1,335,720)

(1,478,981)

Items not affecting cash






     Depreciation

280,307

338,417


512,859

698,543

     Share-based compensation 

251,301

227,485


523,267

346,962

     Other 

58,713

62,960


10,536

66,854

Changes in non-cash working capital






     Accounts receivable

200,075

(12,573)


208,884

(206,897)

     Inventory

134,242

(70,123)


(671,744)

(543,844)

     Government grants receivable

(3,158)

71,161


(9,878)

68,288

     Prepaid expenses

(116,448)

(62,709)


(71,373)

(35,186)

     Trade accounts payables and accrued liabilities

9,738

(59,767)


(644,389)

873,415

Interest on term deposits






    Interest received on term deposits

-

-


-

358,740

    Accrued interest on term deposits

(60,584)

-


(106,521)

(14,165)


77,358

(234,246)


(1,584,079)

133,729







Investing activities






Purchase of property, plant and equipment

(148,924)

(193,791)


(198,486)

(238,348)

Receipts on mature short-term investments

-

-


-

25,000,000

Purchase of term deposits

-

-


(20,000,000)

-


(148,924)

(193,791)


(20,198,486)

24,761,652







Financing activities






Payments made on lease liability

(70,354)

(62,958)


(131,635)

(122,195)

Common shares repurchased

(388,603)

(207,898)


(1,002,216)

(397,893)

Exercise of common share options

-

28,118


-

220,093


(458,957)

(242,738)


(1,133,851)

(299,995)













Effect of exchange rate changes on cash 

(80,087)

(40,661)


(17,548)

(28,958)







Change in cash during the period 

(610,610)

(711,436)


(22,933,964)

24,566,428







Cash - Beginning of period

19,903,462

41,915,025


42,226,816

16,637,161







Cash - End of period 

19,292,852

41,203,589


19,292,852

41,203,589

SOURCE EcoSynthetix Inc.

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