BURLINGTON, ON, Aug. 10, 2016 /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 and six months ended June 30, 2016. Financial references are in U.S.
dollars unless otherwise indicated.
Q2 2016 Highlights
- Expanded its DuraBind™ wood composite trial pipeline and
advanced its late-stage trials with multiple prospects
- Recorded $2.9 million in net
sales in the paper market in Q2 2016, despite continued
depressed petroleum prices through the end of June
- Maintained a strong balance sheet with cash and term deposits
of $57.4 million as at June 30, 2016
- Subsequent to the end of the quarter, the U.S. Environmental
Protection Agency (EPA) finalized a rule to reduce exposure to
formaldehyde vapours from composite wood products, essentially
expanding the California Air Resources Board's CARB 2 emission
standard to all domestically-produced and imported wood composites;
one year after the rule is published, composite wood products that
are sold, supplied, manufactured or imported in the U.S. will need
to be labeled compliant
"Our DuraBind technology is generating significant interest from
a broad range of wood composite manufacturers, as well as
retailers, actively searching for alternatives to reduce
formaldehyde in their products. The recent announcement from the
EPA reinforces the stance many in the industry have already taken
to develop products with reduced formaldehyde emissions," said
Jeff MacDonald, CEO of EcoSynthetix.
"Our DuraBind technology offers manufacturers comparable
performance at a lower cost than other No Added Formaldehyde (NAF)
alternatives. We expect to reach commercial status with our first
account shortly, but even more importantly, we continue to expand
our sales pipeline with new prospects and advance existing
prospects through the trial process. The resin market for wood
composites is a multi-billion dollar market and we believe our
technology can address a broad range of applications. The success
of our commercialization strategy for DuraBind remains our number
one priority in 2016."
Financial Summary
Net Sales
Net sales were $2.9 million and
$5.9 million for the three months
ended June 30, 2016 (Q2 2016) and the
six months ended June 30, 2016 (YTD
2016), respectively, compared to $4.1
million and $8.3 million in
the corresponding periods last year. The changes were primarily due
to lower sales volumes as a result of unfavourable market
conditions in the coated paper industry. Lower sales volume in the
quarterly period were a result of decreases of $0.8 million to existing accounts and
$0.4 million from the closure of a
North America paper mill. In the
YTD 2016 period, sales volume decreased by $1.4 million to existing accounts and
$0.7 million due to the closed mill,
as well as, unfavourable market pricing dynamics which impacted
sales volumes by $0.3 million.
Gross Profit
Gross profit was $0.5 million and
$0.9 million for Q2 2016 and YTD
2016, respectively, compared to $0.7
million and $1.3 million in
the corresponding periods last year. The changes were primarily due
to lower sales volume in the quarterly period and lower sales
volume and pricing pressure YTD 2016. These changes were partially
offset by lower manufacturing production costs.
Gross profit as a percentage of sales were 15.7% and 15.9% in Q2
2016 and YTD 2016, respectively, compared to 16.8% and 15.4% in the
corresponding periods last year. Gross profit as a percentage of
sales adjusted for manufacturing depreciation were 22.3% and 22.6%
for Q2 2016 and YTD 2016, respectively compared to 22.8% and 20.6%
for the corresponding periods last year. The YTD 2016 improvement
was primarily due to lower manufacturing production costs, partly
offset by pricing pressure.
Selling, General and Administrative
(Excludes
share-based compensation, depreciation and amortization and foreign
exchange loss or gain)
Selling, general and administrative expenses (SG&A) were
$1.6 million and $3.2 million in Q2 2016 and YTD 2016,
respectively, compared to $2.0
million and $4.0 million in
the corresponding periods last year. The decrease during both
periods was primarily due to lower people related costs and the
favourable impact of the Canadian dollar versus U.S. dollar which
weakened 4% and 8% during Q2 2016 and YTD 2016, respectively,
compared to the same periods last year.
Provision for termination benefits
Provision for termination benefits were $0.3 million and $0.5
million in Q2 2016 and YTD 2016, respectively, compared to
nil and $1.2 million in the
corresponding periods last year. During the current period,
the Company reached a settlement agreement with respect to the
termination of employment of the former CEO. Accordingly, the
Company recorded a provision for termination benefits of
$0.5 million in the YTD 2016 period.
During the six months ended June 30,
2015, the Company recognized $1.2
million in termination benefits as a result of a workforce
reduction.
Research and Development
(Excludes share-based compensation, depreciation and amortization
and foreign exchange loss or gain)
Research and development (R&D) costs were $1.1 million and $2.2
million in Q2 2016 and YTD 2016, respectively, compared to
$1.0 million and $1.8 million in the corresponding periods last
year. The increase was primarily due to higher spending related to
commercialization activities for DuraBind, partly offset by the
favourable impact of a weaker Canadian dollar versus U.S.
dollar.
Foreign Currency Exchange Gain (Loss)
Foreign exchange gains (loss) were nil and $0.2 in Q2 2016 and YTD 2016, respectively,
compared to $0.1 million and
$(0.5) million in the corresponding
periods last year. The changes were primarily due to the
translation of cash balances denominated in Canadian dollars and
the strengthening of the Canadian dollar versus U.S. dollar.
The Canadian dollar versus U.S. dollar month-end spot rate
strengthened 6% at June 30, 2016
compared to December 31, 2015. During
the same period in fiscal 2015, the Canadian dollar versus U.S.
dollar month-end spot rate weakened 7%.
Adjusted EBITDA
Adjusted EBITDA loss was $2.3
million and $4.4 million in Q2
2016 and YTD 2016, respectively, compared to $2.0 million and $5.8
million in the corresponding periods last year. The change
in the quarter was primarily due to lower gross profit. The
improvement in the YTD 2016 period was principally due to lower
operating expenses partly offset by lower gross profit.
Net Loss
Net loss was $2.6 million, or
$0.04 per common share, and
$5.0 million, or $0.08 per common share, in Q2 2016 and YTD 2016,
respectively, compared to $2.4
million, or $0.04 per commons
share, and $6.6 million, or
$0.12 per common share, for the
corresponding periods last year. The $1.6
million improvement in the YTD 2016 period was principally
due to lower loss from operations.
Liquidity
Cash on hand and term deposits were $57.4
million as at June 30, 2016,
compared to $60.7 million as at
December 31, 2015. During the first
quarter, the Company purchased a $15.0
million fixed term deposit maturing on January 8, 2018. Cash on hand at June 30, 2016, excluding the term deposit, was
$42.3 million.
Notice of Conference Call
EcoSynthetix will host a conference call on Thursday, August 11, 2016 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) 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. 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, 2016 and June 30,
2015:
|
Three months ended
June 30,
2016
|
Three months ended
June 30,
2015
|
Six months ended
June 30,
2016
|
Six months ended
June 30,
2015
|
Net
Loss
|
$(2,644,086)
|
$(2,440,321)
|
$(5,013,308)
|
$(6,564,940)
|
Depreciation and
Amortization
|
303,966
|
376,096
|
596,224
|
712,838
|
Share-based
Compensation
|
155,237
|
127,427
|
297,237
|
162,427
|
Interest
Income
|
(122,923)
|
(74,018)
|
(262,159)
|
(153,909)
|
Adjusted EBITDA
loss
|
(2,307,806)
|
(2,010,816)
|
(4,382,006)
|
(5,843,584)
|
About EcoSynthetix Inc. (www.ecosynthetix.com)
EcoSynthetix offers a range of engineered biopolymers that
replace non-renewable chemicals used to manufacture many products,
such as paper and packaging, and wood composites. The Company's
flagship products, EcoSphere® biolatex® and DuraBindTM
biopolymers, provide customers with a sustainable alternative that
reduces the use of hazardous chemicals, improves performance and
delivers economic benefits. 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 expected product pipeline, plans to expand
the Company's business into new markets, the Company's ability to
achieve organizational efficiencies, and other statements regarding
the Company's plans and expectations in 2016. 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 March 30, 2016. 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
(Unaudited)
|
|
|
|
|
(expressed in US
dollars)
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
Cash
|
42,335,305
|
|
60,717,658
|
Accounts
receivable
|
1,659,108
|
|
1,177,719
|
Inventory
|
2,948,792
|
|
3,290,238
|
Government grants
receivable
|
283,867
|
|
528,436
|
Prepaid
expenses
|
230,038
|
|
242,983
|
|
47,457,110
|
|
65,957,034
|
|
|
|
|
Non-current
assets
|
|
|
|
Long-term term
deposit
|
15,043,560
|
|
-
|
Property, plant and
equipment
|
8,522,572
|
|
8,746,072
|
Total
assets
|
71,023,242
|
|
74,703,106
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
Trade accounts payable and accrued
liabilities
|
2,131,943
|
|
1,262,709
|
Accrued termination
benefits
|
1,444,728
|
|
1,277,755
|
Total
liabilities
|
3,576,671
|
|
2,540,464
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
Common
shares
|
493,232,265
|
|
493,182,209
|
Contributed
surplus
|
8,265,088
|
|
8,017,907
|
Accumulated
deficit
|
(434,050,782)
|
|
(429,037,474)
|
Total shareholders'
equity
|
67,446,571
|
|
72,162,642
|
|
|
|
|
Total liabilities and shareholders'
equity
|
71,023,242
|
|
74,703,106
|
EcoSynthetix
Inc.
Interim Consolidated Statements of Operations and
Comprehensive
Loss
(Unaudited)
|
|
|
|
|
|
|
|
|
(expressed in US
dollars)
|
|
|
|
|
|
|
|
|
|
Three months ended June
30,
|
|
Six months ended June
30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Net
sales
|
2,917,010
|
|
4,094,987
|
|
5,881,480
|
|
8,264,935
|
|
|
|
|
|
|
|
|
Cost of
sales
|
2,459,903
|
|
3,405,067
|
|
4,946,050
|
|
6,993,747
|
|
|
|
|
|
|
|
|
Gross profit on
sales
|
457,107
|
|
689,920
|
|
935,430
|
|
1,271,188
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
Selling, general and
administrative
|
1,768,171
|
|
2,101,295
|
|
3,330,412
|
|
4,827,973
|
Provision for termination
benefits
|
292,849
|
|
-
|
|
492,538
|
|
1,220,080
|
Research and
development
|
1,163,096
|
|
1,102,964
|
|
2,387,947
|
|
1,941,984
|
|
|
|
|
|
|
|
|
|
3,224,116
|
|
3,204,259
|
|
6,210,897
|
|
7,990,037
|
|
|
|
|
|
|
|
|
Loss from
operations
|
(2,767,009)
|
|
(2,514,339)
|
|
(5,275,467)
|
|
(6,718,849)
|
|
|
|
|
|
|
|
|
Interest
income
|
122,923
|
|
74,018
|
|
262,159
|
|
153,909
|
|
|
|
|
|
|
|
|
Net loss and comprehensive
loss
|
(2,644,086)
|
|
(2,440,321)
|
|
(5,013,308)
|
|
(6,564,940)
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common
share
|
(0.04)
|
|
(0.04)
|
|
(0.08)
|
|
(0.12)
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding
|
59,277,680
|
|
56,477,460
|
|
59,276,033
|
|
56,477,460
|
EcoSynthetix
Inc.
Interim Consolidated Statements of Cash
Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
(expressed in US
dollars)
|
Three months ended June
30,
|
|
Six months ended June
30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Cash provided by (used
in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net loss and comprehensive
loss
|
(2,644,086)
|
|
(2,440,321)
|
|
(5,013,308)
|
|
(6,564,940)
|
Items not affecting
cash
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment
loss
|
303,966
|
|
376,096
|
|
596,224
|
|
712,838
|
|
Share-based
compensation
|
155,237
|
|
127,427
|
|
297,237
|
|
162,427
|
|
Unrealized foreign exchange loss
(gain)
|
114,007
|
|
(101,944)
|
|
(47,679)
|
|
427,322
|
|
Other
|
(130,632)
|
|
-
|
|
(241,783)
|
|
-
|
Changes in non-cash working
capital
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
(158,556)
|
|
(639,040)
|
|
(481,389)
|
|
(97,852)
|
|
Inventory
|
(64,575)
|
|
1,340,034
|
|
303,680
|
|
1,210,858
|
|
Government grants
receivable
|
(118,743)
|
|
(155,022)
|
|
(252,248)
|
|
(663,415)
|
|
Prepaid
expenses
|
70,521
|
|
(188,493)
|
|
12,945
|
|
(91,013)
|
|
Trade accounts payable and accrued
liabilities
|
484,852
|
|
(980,075)
|
|
969,234
|
|
(296,663)
|
|
Accrued termination
benefits
|
58,758
|
|
(126,440)
|
|
166,973
|
|
820,910
|
|
(1,929,251)
|
|
(2,787,778)
|
|
(3,690,114)
|
|
(4,379,528)
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Cash used for purchase of intangible assets and
property, plant and
equipment
|
(157,802)
|
|
(174,656)
|
|
(434,958)
|
|
(637,147)
|
Purchase of long-term term
deposit
|
-
|
|
-
|
|
(15,000,000)
|
|
-
|
|
(157,802)
|
|
(174,656)
|
|
(15,434,958)
|
|
(637,147)
|
|
|
|
|
|
|
|
|
Financing
activity
|
|
|
|
|
|
|
|
Proceeds from government
grant
|
200,986
|
|
455,749
|
|
496,817
|
|
455,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on
cash
|
32,169
|
|
86,970
|
|
245,902
|
|
(516,501)
|
|
|
|
|
|
|
|
|
Change in cash during the
period
|
(1,853,898)
|
|
(2,419,715)
|
|
(18,382,353)
|
|
(5,077,427)
|
|
|
|
|
|
|
|
|
Cash - Beginning of
period
|
44,189,203
|
|
64,588,258
|
|
60,717,658
|
|
67,245,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash - End of
period
|
42,335,305
|
|
62,168,543
|
|
42,335,305
|
|
62,168,543
|
SOURCE EcoSynthetix Inc.