Mr. Jeff MacDonald reports

ECOSYNTHETIX REPORTS 2023 FOURTH QUARTER AND YEAR END RESULTS

EcoSynthetix Inc. has released its financial and operational results for the three months and 12 months ended Dec. 31, 2023. Financial references are in U.S. dollars unless otherwise indicated.

Highlights (comparison periods in each case are with the three months ended Dec. 31, 2022):

• Recorded net sales of $2.8-million, down 49 per cent, compared with the prior period;
• Recorded an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $1.0-million, an increase of $600,000 from the prior period;
• Shipped $300,000 of SurfLock for an extended trial in pulp applications with a leading paper and pulp producer, subsequent to the end of the quarter;
• Subsequent to the end of the quarter, a backward integrated producer of particleboard and a leading international retailer identified the use of bio-based glues in one of its particleboard factories in 2023 as a milestone that will impact its future carbon footprint; today, 5 per cent of the climate footprint of the total value chain of this leading international retailer is connected to the use of glue in its board materials;
• Commissioned the new manufacturing line in Burlington, Ont., subsequent to the end of the quarter; by internalizing production, the company improves its ability to launch new products and reduce supply chain management risk;
• Received the platinum designation for the third-consecutive year from EcoVadis, a globally recognized agency for business sustainability ratings of supply chains, by scoring within the top 1 per cent of the 125,000 companies rated;
• Maintained a strong balance sheet with cash and term deposits of $33.3-million as at Dec. 31, 2023;
• Purchased and cancelled 276,500 and 967,900 common shares in fourth quarter 2023 and full-year 2023, respectively, under the normal course issuer bid, for total consideration of $700,000 and $2.4-million.

"The steps we have taken and the progress we have made across the wood composites, the paperboard, pulp and tissue, and the personal care end markets position us for a stronger 2024 and sustainable, long-term growth," said Jeff MacDonald, chief executive officer of EcoSynthetix. "Our revenue base is more diversified today than ever before as the three targeted end markets we address constituted the majority of our sales in 2023. The legacy graphic paper market and the prolonged macrodemand challenges manufacturers face in that vertical have made it relatively immaterial to our go-forward sales volumes. However, the relationships we've established in that end market are proving beneficial as we go to market with SurfLock strength aids. We are seeing strong trial results across multiple prospects, including large global pulp manufacturers. Our key strategic account in wood composites, which is an international retailer that is backward integrated into wood panel manufacturing, continues to raise awareness across its supply chain of the need to move to bio-based glues, which plays directly into the advantages offered by DuraBind. We believe SurfLock and DuraBind will be the primary drivers of our top-line growth in 2024 and beyond."

Financial summary

Net sales

Net sales were $2.8-million and $12.7-million for Q4 2023 and FY 2023, respectively, compared with $5.6-million and $19.0-million for the corresponding periods in 2022. The 49-per-cent decrease in the quarterly period was due to lower volumes, which decreased sales $2.9-million, or 51 per cent, partly offset by a higher average selling price, which increased sales $100,000 or 2 per cent. The 33-per-cent decrease in the annual period was due to lower volumes, which decreased sales $7.6-million or 40 per cent, partly offset by a higher average selling price, which increased sales $1.2-million or 7 per cent. The lower volumes in both periods were primarily due to continued demand deterioration and customer inventory destocking in the legacy graphic paper market. The higher average selling price in the quarterly period was primarily due to product mix while in the annual period it was primarily due to product mix as well as the offsetting of inflationary pressure with price increases.

Gross profit

Gross profit was $500,000 and $2.8-million for Q4 2023 and FY 2023, respectively, compared with $900,000 and $4.2-million for the corresponding periods in 2022. The decrease in the quarterly period was primarily due to lower volumes. The change in the annual period was primarily due to lower volumes and higher costs of manufacturing, partially offset by a higher average selling price.

Gross profit as a percentage of sales was 16.3 per cent and 22.0 per cent for Q4 2023 and FY 2023, respectively, and was comparable with 16.4 per cent and 21.8 per cent for the corresponding periods in 2022. Gross profit as a percentage of sales adjusted for manufacturing depreciation was 21.9 per cent and 28.9 per cent for Q4 2023 and FY 2023, respectively, compared with 21.4 per cent and 25.5 per cent for the corresponding periods in 2022. The improvement in the annual period was 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 $1.3-million and $5.0-million for Q4 2023 and FY 2023, respectively, which are both in line with $1.3-million and $5.1-million for the corresponding periods in 2022. The nominal change in the annual period was primarily due to changes in foreign exchange gains and losses and lower compensation expense related to share-based awards, partly offset by $200,000 asset relocation costs associated with the company's manufacturing realignment strategy announced in early 2023.

Research and development

Research and development (R&D) costs were $600,000 and $2.3-million for Q4 2023 and FY 2023, respectively, compared with $600,000 and $1.9-million in the corresponding periods in 2022. The change in the annual period was primarily due to an increase in new product scale-up costs. R&D expense as a percentage of sales was 20 per cent and 18 per cent for Q4 2023 and FY 2023, respectively, compared with 10 per cent in each of the corresponding periods in 2022. The company's R&D efforts continue to focus on further enhancing value for its existing products and expanding addressable opportunities.

Adjusted EBITDA

Adjusted EBITDA loss was $1.0-million and $2.5-million for Q4 2023 and YTD 2023, respectively, compared with $300,000 and $900,000 in 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 period.

Net loss

Net loss was $600,000, or one cent per common share, and $2.8-million, or five cents per common share, for Q4 2023 and FY 2023, respectively, compared with $700,000, or one cent per common share, and $2.4-million, or four cents per common share, for the corresponding periods in 2022. The change in the quarterly period was primarily due to a gain on the disposal of property, plant, and equipment for $500,000 and $100,000 in higher net interest income earned during the period, offset by an increase in loss from operations of $500,000. The change in the annual period was primarily due to a $1.6-million higher loss from operations offset by an increase of $600,000 in net interest income earned during the period, as well as the gain on disposal of PP&E of $500,000. 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 $33.3-million as at Dec. 31, 2023, compared with $36.0-million as at Dec. 31, 2022. The $2.7-million change was primarily due to $2.4-million for the purchase of shares through the normal course issuer bid and $1.6-million of cash used to purchase property, plant and equipment primarily related to the company's manufacturing capacity realignment strategy, partially offset by $300,000 cash flow from operations. The company purchased and cancelled 276,500 and 967,900 common shares under the NCIB during Q4 2023 and FY 2023, respectively.

Notice of conference call

EcoSynthetix will host a conference call Wednesday, Feb. 28, at 8:30 a.m. ET, to discuss its financial results. Mr. MacDonald, and Robert Haire, chief financial officer, will co-chair the call. All interested parties can instantly join the call by phone by easily registering and being connected into the conference call automatically or through the conventional method by dialling 416-764-8659 or 888-664-6392 with the conference identification of 13266514. 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 EcoSynthetix website. The presentation will be accompanied by slides, which will be available on 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 (ECO).

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