EcoSynthetix Reports 2012 Second Quarter Results

BURLINGTON, ON, Aug. 13, 2012 /CNW/ - EcoSynthetix Inc. ("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 six months ended June 30, 2012. Financial references are in U.S. dollars unless otherwise indicated.

Second Quarter 2012 Highlights

• Won one new customer during the quarter and three customers subsequent to the end of the period, bringing the total new customers won during 2012 to eight
• New customers generated 20% of total sales during the quarter
• Signed a three-year contract with FutureMark Paper Company for a minimum of 2.5 million dry pounds of EcoSphere^® biolatex^® binders annually concurrent with an agreement to install a dry-material handling solution at its mill in Alsip, Illinois, subsequent to the end of the period

"We continue to successfully convert mill trials to customers, winning four new customers since the end of the first quarter. While year-over-year net sales were impacted by a specific Asian account, net sales grew by 39% excluding that customer," said John van Leeuwen, Chief Executive Officer of EcoSynthetix. "This growth reflects our continued confidence in the value that our EcoSphere^® biolatex^® binders offer customers as an alternative to petroleum-based binders. The power of our production process technology is clear even in the face of a recent increase in corn prices, as we maintain our low-cost advantage compared with the volatility and high price of petroleum alternatives."

Financial Summary

Net Sales

Net sales for the three months ended June 30, 2012 (Q2 2012) were $3.7 million compared to $5.6 million for the three months ended June 30, 2011 (Q2 2011). The difference was primarily attributable to $2.9 million in lower sales to a major customer in the Asia Pacific region compared to the prior year. Net sales increased in Q2 2012 by $0.5 million in North America, $0.4 million in EMEA and a $0.1 million in Latin America compared with the same period last year. Excluding the impact of the sales to the major Asian customer, sales increased by 39.4% during Q2 2012 compared to the same period last year.

Net sales for the year-to-date (YTD) period were $7.7 million compared to $11.8 million in the same period last year. The difference was primarily attributable to lower sales in Asia Pacific of $5.9 million partially offset by an increase in sales of $0.9 million and $0.6 million in North America and EMEA respectively. Sales decreased in Asia Pacific principally due to lower purchases from a major customer. Excluding the impact of this customer, sales increased 58.0% for YTD period in 2012 compared to the same period last year. Sales from new customers accounted for 21.0% of total sales for the YTD period.

Gross Profit

Gross profit was $0.6 million or 16.7% of sales in Q2 2012 compared to $1.4 million or 24.1% in the same period last year. The change in gross profit was principally due to lower sales volume, increased raw material input costs related to corn starch, lower sales price and higher manufacturing depreciation.

For the YTD period, gross profit was $1.4 million or 18.0% of sales compared to $2.8 million or 24.2% in the same period last year. The change in gross profit was principally due to lower sales volume, increased raw material input costs related to corn starch and higher manufacturing depreciation partially offset by an increase in sales price.

Manufacturing depreciation in 2012 increased as a result of commissioning two 80 million pound production lines at the Tennessee and the Netherlands facilities. Gross profit as a percentage of sales, adjusted for manufacturing depreciation, was 22.9% and 23.6% for Q2 2012 and YTD, respectively, compared with 25.9% in each of the same two periods last year.

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 $2.3 million in Q2 2012 compared to $2.0 million in the same period last year. For the YTD period, SG&A costs were $4.7 million compared to $3.0 million for the same period last year. The change was principally due to higher salaries and benefits and overhead costs associated with increased headcount.

Research and Development

Research and development (R&D) costs were $1.0 million in Q2 2012 compared to $0.3 million for the same period last year. For the YTD period, R&D costs were $2.0 million compared to $0.7 million for the same period last year. The Company continues to enhance its intellectual property base for new product development of its bio-based technology platforms to support market expansion. 

Adjusted EBITDA¹

Adjusted EBITDA was ($2.4) million in Q2 2012, compared to $(0.8) million in the same period last year. For the YTD period, adjusted EBITDA was ($5.0) million compared to ($0.6) million in the same period last year. Adjusted EBITDA was lower due to increased operating expenses and lower gross profit.

Net Loss

Net loss in Q2 2012 was $2.8 million, or $0.05 per common share (basic and fully diluted), compared to a net loss of $192.0 million, or $177.95 per common share (basic and fully diluted), for same period last year. For the YTD period, net loss was $5.7 million, or $0.10 per share (basic and fully diluted) compared to $248.1 million or $264.57 per share (basic and fully diluted) in the prior period.

The pro-forma (before fair value charges) net loss in Q2 2012 was $2.8 million or $0.05 per share (basic and fully diluted) compared with a pro-forma net loss of $1.1 million or $1.01 per share (basic and fully diluted) in the same period last year. For the YTD period, the pro-forma net loss was $5.7 million, or $0.10 per share (basic and fully diluted) compared to $1.2 million or $1.33 per share (basic and fully diluted) in the same period last year.

Liquidity

Working capital was $106.2 million at June 30, 2012 compared to working capital of $113.8 million at December 31, 2011.  The decrease was principally due to cash utilized in operating and investing activities. 

Notice of Conference Call

EcoSynthetix will host a conference call on Tuesday, August 14, 2012 at 8:30AM 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 dialing (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 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. 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, 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 Q2 2012 and Q2 2011:

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 30, 2012. 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.

SOURCE: EcoSynthetix Inc.