EcoSynthetix Reports 2013 Fourth Quarter and Year-End Results

BURLINGTON, ON, March 4, 2014 /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 twelve months ended December 31, 2013. Financial references are in U.S. dollars unless otherwise indicated.

Fourth Quarter and Fiscal 2013 Highlights

• Net sales increased 14% to $22.2 million for fiscal 2013 compared to $19.6 million in fiscal 2012, while sales in the three months ended December 31, 2013 were $5.2 million compared to $5.9 million in the same period last year
• Won five new customers during calendar 2013 and one new customer subsequent to the end of the period
• Two new binder grades targeting the paper and paperboard market have driven a significant increase in mill trial activity with multiple evaluations underway
• Commercial strategy for sustainable building products advancing with North American and European manufacturers with qualification trials underway.

"During 2013, we continued to make progress across multiple facets of the business. We grew sales by 14%, we introduced new high performance grades of our EcoSphere biolatex binders into the paper and paperboard market and we made significant progress on the commercialization of our proprietary bio-based binders in the wood composites and insulation markets," said John van Leeuwen, Chief Executive Officer of EcoSynthetix. "While the paper market remains challenging given the pressure on butadiene prices, the positive feedback on the new grades has driven a significant increase in mill trial activity. Our focus remains one of execution, specifically growing sales in the paper and paperboard market and building our product development capabilities to expand into new markets, like building materials."

Financial Summary

Net Sales

Net sales for the three months ended December 31, 2013 (Q4 2013) were $5.2 million compared to $5.9 million for the three month period ended December 31, 2012 (Q4 2012), a change of $0.7 million. Sales increased $0.9 million in North America compared to the fourth quarter in 2012, principally due to higher volumes to existing customers. This increase was offset by lower sales in Asia Pacific and EMEA of $1.0 million and $0.7 million respectively. Sales decreased in EMEA primarily due to the closure of a customer's coated paper production line in the region during the quarter.

Net sales for fiscal 2013 were $22.2 million compared to $19.6 million in the prior period, an increase of $2.6 million. The 14% increase in net sales was primarily due to higher sales in North America, Latin America and Europe of $4.4 million, $0.5 million and $0.2 million, respectively, partially offset by lower sales in Asia Pacific of $2.4 million. Sales decreased in Asia Pacific due to the competitive pressures resulting from unfavorable market dynamics caused by the over-supply of butadiene and the related drop in butadiene and SB latex prices.

Gross Profit

Gross profit was $0.9 million for Q4 2013, or 17.4% of revenue, compared to $1.2 million, or 20.1% of revenue, in Q4 2012. Gross profit adjusted for non-cash items as a percentage of sales was 22.9% for Q4 2013 compared with 25.2% in the same period last year. The change was principally due to lower sales volume and higher corn starch costs.

For fiscal 2013, gross profit was $3.6 million, or 16.2% of revenue, compared to $3.9 million, or 19.7% of revenue in the prior period. Gross profit adjusted for non-cash items as a percentage of sales was 21.3% for fiscal 2013 compared with 24.9% last year. The change in gross profit during fiscal 2013 was primarily due to higher corn starch prices and lower selling prices partially offset by higher sales volume.

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 unchanged at $2.9 million for both Q4 2013 and Q4 2012. For fiscal 2013, SG&A costs were $11.6 million compared to $10.2 million in 2012. The change is primarily due to higher salaries & benefits associated with a 20% increase in headcount compared to fiscal 2012.

Research and Development
(Excludes share-based compensation, depreciation and amortization and foreign exchange loss or gain)

Research and development (R&D) expenses were unchanged at $1.5 million in both Q4 2013 and Q4 2012. For fiscal 2013, R&D costs were $5.5 million compared to $4.4 million in 2012. 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 in 2013 reflects the Company's ongoing investment in product development and innovation.

Adjusted EBITDA¹

Adjusted EBITDA for the quarter was ($3.3) million, compared to ($3.0) million in Q4 2012, a decrease of $0.3 million or 10%.  The decrease was primarily due to lower gross profit.  For fiscal 2013, adjusted EBITDA was ($12.4) million, compared to ($9.7) million in the prior period, a decrease of $2.7 million or 28%.  The decrease was primarily due to higher operating expenses and lower gross profit.

Net Loss

Net loss in Q4 2013 was $3.6 million, or $0.07 per common share (basic and fully diluted), compared to a net loss of $3.4 million, or $0.06 per share (basic and fully diluted), in Q4 2012. For fiscal 2013, net loss was $14.8 million, or $0.26 per common share (basic and fully diluted), compared to $11.4 million, or $0.21 per common share (basic and fully diluted), in the prior period. The increase in net loss during fiscal 2013 is primarily due to increased operating expenses and lower gross profit.

Liquidity

Working capital was $87.3 million at December 31, 2013, compared to working capital of $100.2 million at December 31, 2012. The change in working capital was principally due to cash utilized in operating activities.

Notice of Conference Call

EcoSynthetix will host a conference call on Wednesday, March 5, 2014, 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 dialling [phone] or [phone]. 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. 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 and other non-cash expenses deducted in determining 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 Q4 2013 and Q4 2012:

	December 31, 2013	December 31, 2012
Net loss	(3,636,080)	(3,394,357)
Depreciation and amortization	596,824	384,769
Share-based compensation	(137,754)	145,000
Interest income	(87,611)	(85,776)
Adjusted EBITDA (1)	(3,264,621)	(2,950,364)

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.
Consolidated Balance Sheets
At December 31
(Expressed in US dollars), unaudited
	2013		2012
Assets
Current assets
Cash	80,506,957		93,260,296
Accounts receivable	3,691,791		4,309,355
Inventory	6,470,410		6,822,619
Government grants receivable	261,648		184,118
Prepaid expenses	276,856		154,492
	91,207,662		104,730,880
Non-current assets
Intangible assets	124,009		163,501
Property, plant and equipment	12,775,188		13,174,416
Total assets	104,106,859		118,068,797
Liabilities
Current liabilities
Accounts payable and accrued liabilities	3,947,385		4,282,296
Deferred government grant	-		226,920
Total liabilities	3,947,385		4,509,216
Shareholders' Equity
Common shares	492,600,022		492,065,820
Contributed surplus	7,661,849		6,831,354
Accumulated deficit	(400,102,397)		(385,337,593)
Total shareholders' equity	100,159,474		113,559,581
Total liabilities and shareholders' equity	104,106,859		118,068,797

 

EcoSynthetix Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Expressed in US dollars), unaudited
	Three months ended December 31,					Fiscal year-ended December 31,
	2013		2012			2013		2012
Net sales	5,159,069		5,923,661			22,229,846		19,552,345
Cost of sales	4,263,475		4,730,908			18,620,771		15,694,487
Gross profit on sales	895,594		1,192,753			3,609,075		3,857,858
Expenses
Selling, general and administrative	2,741,474		3,153,970			12,916,606		11,266,518
Research and development	1,877,811		1,518,916			5,814,787		4,382,854
	4,619,285		4,672,886			18,731,393		15,649,372
Loss from operations	(3,723,691)		(3,480,133)			(15,122,318)		(11,791,514)
Interest income	87,611		85,776			357,514		360,779
Net loss and comprehensive loss	(3,636,080)		(3,394,357)			(14,764,804)		(11,430,735)
Basic and diluted loss per common share	(0.07)		(0.06)			(0.26)		(0.21)
Weighted average number of common shares outstanding	55,802,382		55,297,736			56,113,610		55,288,432

 

EcoSynthetix Inc.
Consolidated Statements of Cash Flows
(Expressed in US dollars), unaudited
		Three months ended December 31,					Fiscal year-ended December 31,
		2013		2012			2013		2012
Cash provided by (used in)
Operating activities
Net loss		(3,636,080)		(3,394,357)			(14,764,804)		(11,430,735)
Items not affecting cash
	Depreciation and amortization	596,824		384,769			1,731,765		1,207,584
	Share-based compensation	(137,754)		145,000			956,225		847,104
Changes in non-cash working capital
	Accounts receivable	149,210		156,416			617,564		(1,192,910)
	Inventory	819,974		794,393			490,539		3,535,225
	Government grants receivable	(80,699)		254,099			(77,530)		455,567
	Prepaid expenses	77,185		59,892			(122,364)		28,350
	Accounts payable and accrued liabilities	(1,066,391)		642,413			123,088		(6,120)
	Deferred government assistance	-		(234,103)			(226,920)		(10,080)
		(3,277,731)		(1,191,478)			(11,272,437)		(6,566,015)
Investing activities
Purchase of intangible assets and property, plant and equipment		(161,302)		(403,264)			(1,889,374)		(5,748,063)
Financing activities
Repurchase of common shares		-		-			-		(521,729)
Exercise of common share options		7,887		3,614			283,844		145,398
Exercise of warrants		29,329		-			124,628		-
Increase in government grant		-		237,000			-		237,000
		37,216		240,614			408,472		(139,331)
Decrease in cash during the period		(3,401,817)		(1,354,128)			(12,753,339)		(12,453,409)
Cash - Beginning of period		83,908,774		94,614,424			93,260,296		105,713,705
Cash - End of period		80,506,957		93,260,296			80,506,957		93,260,296

  

SOURCE EcoSynthetix Inc.

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