BURLINGTON, ON, July 29, 2020 /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 (Q2 2020)
and six months (YTD 2020) ended June 30,
2020. Financial references are in U.S. dollars unless
otherwise indicated.
Highlights
- Recorded net sales of $3.1
million in Q2 2020, down 39% compared to the same period in
2019 due to the rapid decline in paper demand as a result of the
COVID-19 pandemic
- Recorded cash used in operating activities of $28 thousand in Q2 2020, an increase of
$250 thousand compared to the same
period in 2019
- Recorded Adjusted EBITDA loss of $0.2
million in Q2 2020, compared to a nominal gain for the same
period in 2019
- Purchased and cancelled 744,700 common shares for total
consideration of $1.0 million under
the normal course issuer bid during Q2 2020
- Maintained a strong balance sheet with cash and short-term
investments of $42.3 million as at
June 30, 2020
"The rapid decline in paper demand as a result of the COVID-19
pandemic is reflected in our sales performance. Industry reports
show North American coated freesheet shipments were down 43% in the
quarter compared to the same period last year. Despite ongoing
pressure, the cost discipline measures we implemented in the past
two years have mitigated the impact on our adjusted EBITDA and cash
flow which held up better than demand," said Jeff MacDonald, CEO of EcoSynthetix. "The paper
and paperboard markets are foundational to the business, however we
believe our growth drivers remain the wood composites and personal
care applications. Our key strategic prospect in wood composites
remains highly engaged and their activities with our DuraBind™
binder continue to progress well. As consumers, retailers and
manufacturers pursue a healthier, No-Added Formaldehyde binder in
wood composites, our DuraBind™ resin is positioned as the leading
alternative. With green ingredients for healthy homes and lifestyle
choices receiving increased interest, our biopolymer technologies
are well-positioned to benefit from these long-term trends."
Financial Summary
Net Sales
Net sales were $3.1 million and
$7.3 million for Q2 2020 and YTD
2020, respectively, compared to $5.1
million and $9.5 million in
the corresponding periods in 2019. The decrease in the quarterly
period was due to lower sales volumes which reduced sales
$1.7 million, or 34%, and a lower
average selling price which reduced sales by $0.3 million, or 5%. The decrease in the YTD
period was due to lower sales volume which reduced sales
$1.8 million, or 19%, and a lower
average selling price which reduced sales by $0.4 million, or 4%. The decrease in volume and
average selling price in both periods was primarily due to
unfavorable market conditions brought on by the COVID-19 pandemic
which reduced the global demand for paper products and created
adverse market pricing dynamics.
Gross Profit
Gross profit was $0.5 million and
$1.6 million for Q2 2020 and YTD
2020, respectively, compared to $1.0
million and $2.0 million in
the corresponding periods in 2019. The decrease in both periods was
primarily due to lower sales volume and a lower average selling
price partly offset by lower manufacturing costs.
Gross profit as a percentage of sales was 16.6% and 22.1% for Q2
2020 and YTD 2020, respectively, compared to 20.1% and 21.1% in the
corresponding periods in 2019. Gross profit as a percentage of
sales adjusted for manufacturing depreciation was 23.6% and 27.2%
for Q2 2020 and YTD 2020, respectively, compared to 24.8% and 25.2%
for the corresponding periods in 2019. The decrease in gross profit
as a percentage of sales adjusted for manufacturing depreciation in
the quarter was primarily due to a lower average selling price
partly offset by lower manufacturing costs. The increase in the YTD
period was primarily due to lower manufacturing costs partly offset
by a lower average selling price.
Selling, General and Administrative
Selling, general and administrative expenses (SG&A) were
$0.9 million and $2.2 million for Q2 2020 and YTD 2020,
respectively, compared to $1.1
million and $2.3 million for
the corresponding periods in 2019. The decrease in the quarter was
primarily due to payments received under the Canadian Employer Wage
Subsidy program (CEWS) in the amount of $0.1
million, a change in foreign exchange gains and losses and
lower discretionary spend. The decrease in the YTD period was
primarily due to payments received from CEWS and lower
discretionary spend which was partly offset by a change in foreign
exchange gains and losses. Changes in foreign exchange are
primarily due to fluctuations between the U.S. dollar (the
Company's functional currency) and foreign currencies (primarily
Canadian dollars) and the related impact on the net monetary
position in those respective currencies.
Research and Development
Research and development (R&D) costs were $0.4 million and $0.8
million for Q2 2020 and YTD 2020, respectively, which are
each comparable to the corresponding periods in 2019. R&D
expense as a percentage of sales was 14% and 11% for Q2 2020 and
YTD 2020, respectively, compared to 8% and 9% in the corresponding
periods in 2019. The Company's R&D efforts continue to focus on
further enhancing value for its existing products and expanding
addressable opportunities.
Adjusted EBITDA1
Adjusted EBITDA loss was $0.2
million and $0.4 million for
Q2 2020 and YTD 2020, respectively, compared to a nominal gain and
a loss of $0.1 million in the
corresponding periods in 2019. The changes are due to a higher net
loss due to lower gross profit partly offset by lower operating
expenses.
Net Loss
Net loss was $0.6 million, or
$0.01 per common share, and
$1.1 million, or $0.02 per common share, for Q2 2020 and YTD 2020,
respectively, compared to $0.2
million, or $0.01 per common
share, and $0.6 million, or
$0.01 per common share, for the
corresponding periods in 2019. The increases in both periods were
primarily due to lower gross profit partly offset by lower
operating expenses.
Liquidity
Cash on hand and short-term investments were $42.3 million as at June
30, 2020, compared to $43.7
million as at December 31,
2019. Cash on hand at June 30,
2020, excluding the $35.4
million in short-term investments, was $7.0 million. Under the normal course issuers bid
the Company purchased and cancelled 744,700 and 1,101,600 common
shares during Q2 2020 and YTD 2020 for consideration of
$1.0 million and $1.5 million respectively.
Notice of Conference Call
EcoSynthetix will host a conference call Thursday, July 30, 2020 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 with the conference identification of
4991548. 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 and six months ended June 30,
2020 and June 30, 2019:
(Unaudited)
|
Three months
ended
June 30,
2020
|
Three months
ended
June 30,
2019
|
Six months ended
June
30,
2020
|
Six months ended
June
30,
2019
|
Net
Loss
|
(608,245)
|
(200,588)
|
(1,055,500)
|
(553,824)
|
Depreciation
|
369,103
|
387,330
|
682,980
|
689,959
|
Share-based
Compensation
|
169,026
|
113,810
|
313,278
|
294,407
|
Interest
Income
|
(172,351)
|
(274,857)
|
(373,464)
|
(549,902)
|
Adjusted EBITDA
loss
|
(242,467)
|
25,695
|
(432,706)
|
(119,360)
|
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™ and EcoSphere®, are used to manufacture wood
composites, paper and packaging, and enable performance
improvements, economic benefits and sustainability. 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,
convert late-stage industrial trial prospects into customers and
expand the number of lines and the volumes at existing customers,
and other statements regarding the Company's plans and expectations
in 2020. 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 2,
2020. In addition to the risk factors identified in the
Company's Annual Information Form, as of the date of this Press
Release, the Company has identified additional risks associated
with the COVID-19 global pandemic which are described
below.
Beginning in December 2019, a
new strain of the coronavirus (COVID-19) has spread rapidly through
the world including the United
States, Asia, Canada and Europe (where, collectively, fairly large
portions of the Company's operations and customers are located).
During the three months ended June 30,
2020 COVID-19 has caused both the global demand for paper
products to decrease and a decrease in the pricing of
petroleum-related products which the Company's products compete
with. This has resulted in reduced sales volume, lower pricing and
reduced gross profit for the Company. COVID-19 has also reduced the
Company's ability to effectively market and trial its products with
customers where on-site collaboration is preferred. During
the three-month period ended June 30,
2020 the Company also applied for and received government
assistance under the Canadian Employer Wage Subsidy (CEWS) program.
No other COVID-19 related risks identified below have materialized
during the period and there has been no other impact on operating
results. For the remainder of 2020, COVID-19 will likely
continue to have negative material impacts on the global economy
which present significant additional risk factors. For the Company,
this outbreak might materially impact the Company's ability to
manufacture, source (including the delivery of raw materials to its
facilities) or distribute its products both domestically and
internationally; reduce its ability to effectively market and sell
its products; reduce demand for its products; cause a significant
decrease in the market price for petroleum-related feedstocks which
the Company's products are an alternative, and cause increased
credit risk. Any of these additional risks factors could have a
significant negative impact on the Company's financial results in
2020 and beyond. Given the dynamic nature of this outbreak, the
extent to which the COVID-19 virus impacts the Company's results
will depend on future developments, which remain highly uncertain
and cannot be accurately predicted at this time.
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)
|
|
|
|
|
(Unaudited)
|
|
|
June 30,
2020
|
December 31,
2019
|
Assets
|
|
|
|
|
|
Current
assets
|
|
|
Cash
|
6,987,088
|
7,975,713
|
Short-term
investments
|
35,357,260
|
35,720,548
|
Accounts
receivable
|
1,226,122
|
1,824,581
|
Inventory
|
2,222,716
|
2,268,961
|
Government grants
receivable
|
40,321
|
114,956
|
Prepaid
expenses
|
95,455
|
75,973
|
|
45,928,962
|
47,980,732
|
|
|
|
Non-current
assets
|
|
|
Property, plant and
equipment
|
6,261,126
|
6,729,371
|
Total
assets
|
52,190,088
|
54,710,103
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Current
liabilities
|
|
|
Trade accounts
payables and accrued liabilities
|
1,064,025
|
1,360,568
|
|
|
|
Non-current
liabilities
|
|
|
Lease
liability
|
1,114,296
|
1,176,643
|
Total
liabilities
|
2,178,321
|
2,537,211
|
Shareholders'
Equity
|
|
|
Common
shares
|
489,306,465
|
490,590,406
|
Contributed
surplus
|
10,529,974
|
10,351,658
|
Accumulated
deficit
|
(449,824,672)
|
(448,769,172)
|
Total
shareholders' equity
|
50,011,767
|
52,172,892
|
|
|
|
Total liabilities
and shareholders' equity
|
52,190,088
|
54,710,103
|
EcoSynthetix
Inc.
|
Interim
Consolidated Statements of Operations and Comprehensive
Loss
|
For the three and
six months ended June 30, 2020 and 2019
|
(expressed in US
dollars)
|
|
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Three months
ended June 30,
|
|
Six months
ended June 30,
|
|
2020
|
2019
|
|
2020
|
2019
|
|
|
|
|
|
|
Net
sales
|
3,102,881
|
5,074,363
|
|
7,327,297
|
9,543,084
|
|
|
|
|
|
|
Cost of
sales
|
2,587,339
|
4,053,215
|
|
5,711,541
|
7,530,864
|
|
|
|
|
|
|
Gross profit on
sales
|
515,542
|
1,021,148
|
|
1,615,756
|
2,012,220
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Selling, general and
administrative
|
858,254
|
1,111,629
|
|
2,230,741
|
2,284,958
|
Research and
development
|
437,884
|
384,964
|
|
813,979
|
830,988
|
|
1,296,138
|
1,496,593
|
|
3,044,720
|
3,115,946
|
|
|
|
|
|
|
Loss from
operations
|
(780,596)
|
(475,445)
|
|
(1,428,964)
|
(1,103,726)
|
|
|
|
|
|
|
Net interest
income
|
172,351
|
274,857
|
|
373,464
|
549,902
|
Net loss and
comprehensive loss
|
(608,245)
|
(200,588)
|
|
(1,055,500)
|
(553,824)
|
|
|
|
|
|
|
Basic and diluted
loss per common share
|
(0.01)
|
(0.00)
|
|
(0.02)
|
(0.01)
|
Weighted average
number of common shares outstanding
|
57,119,605
|
58,418,779
|
|
57,522,911
|
58,354,928
|
EcoSynthetix
Inc.
|
Interim
Consolidated Statements of Cash Flows
|
For the three and
six months ended June 30, 2020 and 2019
|
(expressed in US
dollars)
|
|
|
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Three months
ended June 30,
|
|
Six months
ended June 30,
|
|
2020
|
2019
|
|
2020
|
2019
|
Cash provided by
(used in)
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net loss and
comprehensive loss
|
(608,245)
|
(200,588)
|
|
(1,055,500)
|
(553,824)
|
Items not affecting
cash
|
|
|
|
|
|
Depreciation
|
369,103
|
387,330
|
|
682,980
|
689,959
|
Share-based
compensation
|
169,026
|
113,810
|
|
313,278
|
294,407
|
Other
|
(222,208)
|
42,966
|
|
(143,488)
|
8,436
|
Changes in non-cash
working capital
|
|
|
|
|
|
Accounts
receivable
|
1,060,688
|
(571,935)
|
|
598,459
|
146,371
|
Inventory
|
416,906
|
969,274
|
|
45,980
|
174,956
|
Government grants
receivable
|
(7,114)
|
(74,945)
|
|
74,635
|
(71,307)
|
Prepaid expenses
|
(58,283)
|
(90,365)
|
|
(19,482)
|
(50,648)
|
Trade accounts payables and
accrued liabilities
|
(953,878)
|
(193,031)
|
|
(304,663)
|
(736,821)
|
Interest on
short-term investments
|
|
|
|
|
|
Interest received on short-term investments
|
-
|
86,301
|
|
760,545
|
741,501
|
Accrued interest on short-term investments
|
(194,465)
|
(249,315)
|
|
(397,257)
|
(473,773)
|
|
(28,470)
|
219,502
|
|
555,487
|
169,257
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
Purchase of property,
plant and equipment
|
(24,905)
|
(86,362)
|
|
(113,860)
|
(165,049)
|
Receipts on mature
short-term investments
|
-
|
-
|
|
35,000,000
|
30,000,000
|
Purchase of
short-term investments
|
-
|
-
|
|
(35,000,000)
|
(35,000,000)
|
|
(24,905)
|
(86,362)
|
|
(113,860)
|
(5,165,049)
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
Payments made on
lease liability
|
(45,488)
|
(44,199)
|
|
(93,067)
|
(96,199)
|
Common shares
repurchased
|
(987,866)
|
(6,449)
|
|
(1,464,433)
|
(65,763)
|
Exercise of common
share options
|
-
|
101,074
|
|
45,530
|
149,626
|
|
(1,033,354)
|
50,426
|
|
(1,511,970)
|
(12,336)
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange
rate changes on cash
|
270,222
|
(16,133)
|
|
81,718
|
18,397
|
|
|
|
|
|
|
Change in cash
during the period
|
(816,507)
|
167,433
|
|
(988,625)
|
(4,989,731)
|
|
|
|
|
|
|
Cash - Beginning
of period
|
7,803,595
|
9,050,178
|
|
7,975,713
|
14,207,342
|
|
|
|
|
|
|
Cash - End of
period
|
6,987,088
|
9,217,611
|
|
6,987,088
|
9,217,611
|
SOURCE EcoSynthetix Inc.