Mr. Jeff MacDonald reports

ECOSYNTHETIX REPORTS 2023 THIRD QUARTER RESULTS

EcoSynthetix Inc. today released its financial and operational results for the three months (Q3 2023) and nine months (YTD 2023) ended Sept. 30, 2023. Financial references are in United States dollars unless otherwise indicated.

Highlights

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

• Recorded net sales of $3.8-million, down 24 per cent, compared with the prior period;
• Recorded an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $200,000, in line with the prior period;
• Maintained a strong balance sheet with cash and term deposits of $34.7-million as at Sept. 30, 2023;
• Purchased and cancelled 274,600 common shares in Q3 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, which will improve the company's ability to launch new products and reduce supply chain management risk;
• Increased trial activity across each of the company's end markets during the quarter and into the fourth quarter.

"We are seeing improvements in both trial activity and feedstock that set us up for a stronger 2024. However, weak market conditions continued to impact our volumes in the third quarter, led by the ongoing deterioration in graphic paper demand," said Jeff MacDonald, chief executive officer of EcoSynthetix. "We are seeing strong trial activity with multiple trials ongoing across each of our end markets, including wood composites, tissue, packaging and specialty paper. Our key wood composites account is expanding usage of our DuraBind resin. The trial activity in the tissue, packaging and pulp end market is also accelerating despite difficult macro conditions in that market. On the supply side, the constraints we experienced earlier in the year on feedstock availability have subsided. Feedstock pricing has also improved but remains elevated relative to an historical basis. While it has been a challenging 2023, we are seeing better momentum in the business and look forward to a return to growth in 2024."

Financial summary

Net sales

Net sales were $3.8-million and $9.8-million for Q3 2023 and YTD 2023, respectively, compared with $5.0-million and $13.4-million for the corresponding periods in 2022. The 24-per-cent decrease in the quarterly period was primarily due to lower volumes which decreased sales $1.9-million or 38 per cent, partially offset by a higher average selling price which increased sales $700,000 or 14 per cent. The 27-per-cent decrease in the YTD period was due to lower volumes which decreased sales $4.7-million or 35 per cent, partially offset by a higher average selling price which increased sales $1.1-million or 8 per cent. The lower volumes in both periods were primarily due to continued demand deterioration in the graphic paper market. The higher average selling price during both periods was due to the offsetting of inflationary pressures with price increases, and product mix.

Gross profit

Gross profit was $1.2-million and $2.3-million for Q3 2023 and YTD 2023, respectively, compared with $1.0-million and $3.2-million for the corresponding periods in 2022. The increase in the quarterly period was primarily due to higher average selling price, as a result of product mix, partially offset by lower volumes and higher costs of manufacturing. The change in the YTD period was primarily due to decreased sales volumes and higher costs of manufacturing, partially offset by a higher average selling price.

Gross profit as a percentage of sales was 30.3 per cent and 23.6 per cent for Q3 2023 and YTD 2023, respectively, compared with 20.6 per cent and 24.1 per cent for the corresponding periods in 2022. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 34.0 per cent and 30.9 per cent for Q3 2023 and YTD 2023, respectively, compared with 23.0 per cent and 27.3 per cent for the corresponding periods in 2022. The improvement is primarily due to a higher average selling price partly offset by higher costs of manufacturing.

Selling, general and administrative

Selling, general and administrative expenses (SG&A) were $1.2-million and $3.6-million for Q3 2023 and YTD 2023, respectively, compared with $1.2-million and $3.9-million for the corresponding periods in 2022. SG&A expenses in the quarterly period were in line with the prior period. The improvement in YTD period 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 $500,000 and $1.7-million for Q3 2023 and YTD 2023, respectively, compared with $400,000 and $1.4-million in the corresponding periods in 2022. The quarterly period was in line with the prior year. The increase during the YTD period was primarily due to an increase in new product scale up costs. R&D expense as a percentage of sales was 14 per cent and 18 per cent for each of Q3 2023 and YTD 2023, respectively, compared with 9 per cent and 10 per cent in the corresponding periods in 2022. The company's R&D efforts continue to focus on further enhancing value for the company's existing products and expanding addressable opportunities.

Adjusted EBITDA

Adjusted EBITDA loss was $200,000 and $1.6-million for Q3 2023 and YTD 2023, respectively, compared with $100,000 and $500,000 for the corresponding periods in 2022. The quarterly period was in line with the prior year. The change in the YTD period was primarily due to lower gross profit and higher operating costs adjusted for non-cash items when compared with the prior period.

Net loss

Net loss was $300,000, or nil per common share, and $2.2-million, or four cents per common share, for Q3 2023 and YTD 2023, respectively, compared with $400,000, or one cent per common share, and $1.7-million, or three cents per common share, for the corresponding periods in 2022. The change in the quarterly period was due to $200,000 in higher net interest income earned during the period. The change in the YTD period was primarily due to a $1.1-million higher loss from operations partially offset by an increase of $600,000 in net interest income. The higher net interest income during both periods is due to an increase in interest rates on cash and term deposits.

Liquidity

Cash on hand and term deposits were $34.7-million as at Sept. 30, 2023, compared with $36.0-million as at Dec. 31, 2022. The $1.3-million change was primarily due to $1.7-million for the purchase of shares through the normal course issuer bid (NCIB) and $700,000 of cash used to purchase property, plant and equipment primarily related to the company's manufacturing capacity realignment strategy, partially offset by $1.3-million cash flow from operations. The company purchased and cancelled 274,600 and 691,400 common shares under the NCIB during Q3 2023 and YTD 2023, respectively.

Notice of conference call

EcoSynthetix will host a conference call Friday, Nov. 3, 2023, at 9 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 link from the original version of this 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 77021489. 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 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 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 (TSX: ECO).

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