Mr. Jeff MacDonald reports

ECOSYNTHETIX REPORTS 2023 SECOND QUARTER RESULTS

EcoSynthetix Inc. today released its financial and operational results for the three months (Q2 2023) and six months (YTD 2023) ended June 30, 2023. Financial references are in United States dollars unless otherwise indicated.

Highlights

(Comparison periods in each case are the three months ended June 30, 2022)

• Recorded net sales of $3.0-million, down 29 per cent, compared with the prior period.
• Recorded an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $800,000, an increase in loss of $500,000 from the prior period.
• Maintained a strong balance sheet with cash and term deposits of $35.7-million as at June 30, 2023.
• Purchased and cancelled 348,400 common shares in Q2 2023 under the normal course issuer bid for total consideration of $700,000.
• Internalization of North American production capacity on schedule and budget with an anticipated start up by the end of 2023.
• Expanding opportunity pipeline with increased trial activity year to date.
• Recognized improvements in the availability and pricing of the company's primary feedstock, subsequent to the end of the period.

"The macro challenges we experienced to start 2023 continued in the second quarter. While the graphic paper market remains depressed, we are seeing positive momentum across other verticals," said Jeff MacDonald, chief executive officer of EcoSynthetix. "Our key strategic account in wood composites has become more vocal with their suppliers, stakeholders and consumers of their commitment to biobased glues. As a thought leader and major consumer of engineered wood panels, their influence on manufacturers is a key element to broader adoption of our resins for wood composites. We also continue to advance and expand our opportunities for tissue, packaging and pulp with our strength aids that show encouraging signs for stronger volumes in the second half and into 2024. These end markets are the growth drivers of the business moving forward where we bring proprietary applications to our customers with differentiated benefits to conventional petroleum chemistries."

Financial summary

Net sales

Net sales were $3.0-million and $6.0-million for Q2 2023 and YTD 2023, respectively, compared with $4.2-million and $8.4-million for the corresponding periods in 2022. The 29-per-cent decrease in the quarterly period was primarily due to lower volumes which decreased sales $1.2-million or 30 per cent. The lower volumes were due to a stepdown in demand due to the macro-economic challenges across many end markets including approximately $400,000 lower sales due to inventory destocking at a large distributor into the graphic paper market, continued demand deterioration in the graphic paper market and softer demand due to temporary market related customer mill downtimes. The drivers behind the decrease in the YTD period were consistent with the quarterly period, with lower volumes which led to a decrease in sales of $2.8-million or 33 per cent. A higher average selling price during both periods was due to the offsetting of significant inflationary pressures with price increases and product mix.

Gross profit

Gross profit was $500,000 and $1.2-million for Q2 2023 and YTD 2023, respectively, compared with $1.1-million and $2.2-million for the corresponding periods in 2022. The change in both periods was primarily due to the decreased sales volumes and higher costs of manufacturing, which were partially offset by a higher average selling price.

Gross profit as a percentage of sales was 18.6 per cent and 19.4 per cent for Q2 2023 and YTD 2023, respectively, compared with 26.8 per cent and 26.1 per cent for the corresponding periods in 2022. The change in both periods is primarily due to higher costs of manufacturing, including $300,000 in higher depreciation during YTD 2023, partially offset by a higher average selling price. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 25.2 per cent and 29.0 per cent for Q2 2023 and YTD 2023, respectively, compared with 30.8 per cent and 29.8 per cent for the corresponding periods in 2022. The change in both periods is primarily due to higher manufacturing costs, partially offset by a higher average selling price.

Selling, general and administrative

Selling, general and administrative expenses (SG&A) were $1.2-million and $2.4-million for Q2 2023 and YTD 2023, respectively, compared with $1.4-million and $2.7-million for the corresponding periods in 2022. The improvement in both periods was primarily due to changes in foreign exchange gains and losses and lower compensation expense related to share-based awards.

Research and development

Research and development (R&D) costs were $600,000 and $1.2-million for Q2 2023 and YTD 2023, respectively, compared with $500,000 and $900,000 in the corresponding periods in 2022. The increase during both periods was primarily due to an increase in new product scale-up. R&D expense as a percentage of sales was 21 per cent and 20 per cent for each of Q2 2023 and YTD 2023, respectively, compared with 12 per cent and 11 per cent in the corresponding periods in 2022. The company's R&D efforts continue to focus on further enhancing value for our existing products and expanding addressable opportunities.

Adjusted EBITDA

Adjusted EBITDA loss was $800,000 and $1.4-million for Q2 2023 and YTD 2023, respectively, compared with $200,000 and $400,000 for the corresponding periods in 2022. The change in both periods was primarily due to lower gross profit and higher operating costs adjusted for non-cash items when compared with the prior periods.

Net loss

Net loss was $1.0-million, or two cents per common share, and $2.0-million, or three cents per common share, for Q2 2023 and YTD 2023, respectively, compared with $700,000, or one cent per common share, and $1.3-million, or two cnets per common share, for the corresponding periods in 2022. The change in the quarterly period was due to a $500,000 higher loss from operations offset by an increase of $200,000 in net interest income. The change in the YTD period was primarily due to a $1.0-million higher loss from operations offset by an increase of $400,000 in net interest income. The higher net interest income in both periods was due to an increase in interest rates on cash and term deposits.

Liquidity

Cash on hand and term deposits were $35.7-million as at June 30, 2023, compared with $36.0 -illion as at Dec. 31, 2022. The $300,000 change was primarily due to $500,000 of cash used to purchase property, plant and equipment primarily related to the company's manufacturing capacity realignment strategy and $900,000 for the purchase of shares through the normal course issuer bid (NCIB), partially offset by $1.2-million cash-flow from operations. The company purchased and cancelled 348,400 and 416,800 common shares under the NCIB during Q2 2023 and YTD 2023, respectively.

Notice of conference call

EcoSynthetix will host a conference call Thursday, Aug. 3, 2023, at 8:30 a.m. ET to discuss its financial results. Jeff MacDonald, chief executive officer, and Robert Haire, chief financial officer, will co-chair the call. All interested parties can instantly join the call by phone by following a URL provided in the original release to easily register and be connected into the conference call automatically or the conventional method by dialling 416-764-8659 or 888-664-6392 with the conference identification of 66265458. 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 the company's website. 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.

About EcoSynthetix Inc.

EcoSynthetix offers a range of sustainable engineered biopolymers that allow customers to reduce their use of harmful materials, such as formaldehyde-based and styrene-based chemicals. The company's flagship products, DuraBind, Surflock, Bioform and EcoSphere, are used to manufacture wood composites, personal care, paper, tissue and packaging products and enable performance improvements, economic benefits and carbon footprint reduction. The company is publicly traded on the Toronto Stock Exchange (under the symbol ECO).

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