EcoSynthetix Reports 2024 Third Quarter Results

BURLINGTON, ON, Nov. 4, 2024 /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 (Q3 2024) and nine months (YTD 2024) ended September 30, 2024. Financial references are in U.S. dollars unless otherwise indicated.

Highlights(Comparison periods in each case are the three months ended September 30, 2023)

Recorded net sales of $5.2 million, up 38%, compared to the prior period, enabled by 56% higher volumes from increased demand.

Recorded an Adjusted EBITDA1 of $0.4 million, an improvement of $0.6 million from the prior period.

Experienced increased demand in the wood composites end market from higher usage at commercial mills.

Successful extended trials continue in pulp applications with a leading international pulp manufacturer.

Purchased and cancelled 178,300 common shares in Q3 2024 under the normal course issuer bid for total consideration of $0.6 million.

Maintained a strong balance sheet with cash and term deposits of $33.5 million as at September 30, 2024.

"Our innovative biopolymers continue to gain traction in the market with a nearly 50% increase in demand in 2024 year-to-date, underpinning our strong top line growth and improvements in the bottom line," said Jeff MacDonald, CEO of EcoSynthetix. "Our key accounts and prospects remain highly engaged, with positive momentum across tissue, paperboard and pulp, wood composites and personal care. One of the leading global pulp producers continues its extended commercial trials with our strength aid, SurfLock™, with large scale trials continuing through the end of the year. Our strength aid offers material economic and performance benefits for producers of pulp and pulp-based products like tissue and packaging. Our no-added formaldehyde binders offer significant carbon reduction benefits in wood panel production to our key strategic account which is backward integrated with an international retailer. Our film forming polymers are helping our marketing and development partner, Dow, offer an all-natural label and performance benefits across new applications and customers in the personal care end market. The momentum we are building is a result of our success diversifying across these key end markets. We are engaged with the right partners, accounts, and prospects to continue this growth into 2025."         

Financial Summary

Net Sales

Net sales were $5.2 million and $13.1 million for Q3 2024 and YTD 2024, respectively, compared to $3.8 million and $9.8 million for the corresponding periods in 2023. The 38% increase in the quarterly period was due to higher volumes, which increased sales $2.1 million, or 56%, partly offset by a lower average selling price which decreased sales $0.7 million or 18%. The higher volumes were primarily due to improved demand. The 33% increase in the YTD period was due to higher volumes of $4.7 million, or 47%, partly offset by a lower average selling price of $1.4 million, or 14%. The higher volumes were primarily due to improved demand including $0.7 million in sales of SurfLock™ for extended trials in a pulp application with a leading global pulp producer. The lower average selling price during both periods was primarily due to lower manufacturing costs which were partially passed on to customers, as well as product mix.   

Gross Profit

Gross profit was $1.7 million and $3.7 million for Q3 2024 and YTD 2024, respectively, compared to $1.2 million and $2.3 million for the corresponding periods in 2023. The increase in both periods was primarily due to higher volumes and lower manufacturing costs, including lower manufacturing depreciation, partially offset by a lower average selling price.

Gross profit as a percentage of sales was 33.3% and 28.5% for Q3 2024 and YTD 2024, respectively, compared to 30.3% and 23.6% in the corresponding periods last year. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 36.8% and 32.7% for Q3 2024 and YTD 2024, respectively, compared to 34.0% and 30.9% for the corresponding periods in 2023. The increase in each period for both metrics was primarily due to lower manufacturing costs, partially offset by a lower average selling price.  

Selling, General and Administrative

Selling, general and administrative expenses (SG&A) were $1.5 million and $4.6 million for Q3 2024 and YTD 2024, respectively, compared to $1.2 million and $3.6 million for the corresponding periods in 2023. The increase during the quarterly period was due to an increase in variable based compensation. The increase in the YTD period was due to variable based compensation and asset relocation costs associated with the Company's manufacturing footprint realignment project.

Research and Development

Research and development (R&D) costs were $0.6 million for Q3 2024 and $1.7 million for YTD 2024, relatively unchanged from prior periods. R&D expense as a percentage of sales was 11% and 13% for Q3 2024 and YTD 2024, respectively, compared to 14% and 18% in the corresponding periods in 2023. 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 was $0.4 million for Q3 2024, a $0.6 million improvement compared to an Adjusted EBITDA loss of $0.2 million in the same period last year. Adjusted EBITDA loss was $1.0 million for YTD 2024, a $0.6 million improvement compared to $1.6 million in the same period last year. The improvement in each period was due to higher gross profit partially offset by higher operating expenses adjusted for non-cash items.  

Net Income

Net income was $0.1 million, or $0.00 per common share, for Q3 2024, compared to a net loss of $0.3 million, or $0.00 per common share, in the same period last year. Net loss was $1.2 million, or $0.02 per common share, for YTD 2024, compared to $2.2 million, or $0.04 per common share for the corresponding period in 2023. The $0.4 million improvement in the quarterly period was primarily due to a $0.3 million lower loss from operations and $0.1 million in higher net interest income. The $1.1 million improvement in the YTD period was primarily due to a $0.5 million lower loss from operations, $0.5 million in higher net interest income and a $0.1 million gain on the sale of redundant equipment. The higher net interest income during each period was due to an increase in interest rates on cash and term deposits.

Liquidity

Cash on hand and term deposits were $33.5 million as at September 30, 2024, compared to $33.3 million as at December 31, 2023. The Company purchased and cancelled 178,300 and 504,500 common shares under the NCIB during Q3 2024 and YTD 2024, respectively, for consideration of $0.6 million and $1.7 million.

Notice of Conference Call

EcoSynthetix will host a conference call Tuesday, November 5, 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 instantly join the call by phone, by following the URL https://emportal.ink/4eA6VKl to easily register and be connected into the conference call automatically or the conventional method by dialling (416) 945- 7677 or (888) 699-1199 with the conference identification of 97178. 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 or https://app.webinar.net/7je0kVJkmn6. 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, gain or loss on disposals of property, plant and equipment and 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 nine months ended September 30, 2024, and September 30, 2023:

Three months ended September 30, 2024

Three months ended September 30, 2023

Nine months ended September 30, 2024

Nine months ended September 30, 2023

Net income (loss)

143,191

(267,947)

(1,160,042)

(2,236,423)

Depreciation

269,945

234,516

812,577

1,021,295

Share-based compensation

394,724

165,084

796,143

491,308

Gain on disposal of property, plant and equipment

-

-

(90,000)

-

Interest income

(443,146)

(320,755)

(1,309,064)

(829,891)

Adjusted EBITDA (loss)

364,714

(189,102)

(950,386)

(1,553,711)

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 ...