EcoSynthetix Inc. (ECO) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the EcoSynthetix Annual Meeting of Shareholders Conference. [Operator Instructions] Note that this call is being recorded on Tuesday, June 28, 2022, at 9:00 a.m. Eastern Time. And I would like to turn the meeting over to Mr. Paul Lucas, Chairman of the Board. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and welcome to the Annual Meeting of the Shareholders of EcoSynthetix Inc. The meeting will come to order. My name is Paul Lucas, and I'm Chair of the Board of EcoSynthetix, and pursuant to EcoSynthetix' bylaws, I will chair this meeting. Rob Haire, the Chief Financial Officer and Corporate Secretary of the company, will act as the secretary of the meeting. We would also like to welcome those who are attending via conference call to listen into the meeting today. After the meeting is complete, Jeff MacDonald, the Chief Executive Officer of the company, will make a presentation, after which there will be a period for questions. For the purposes of this meeting, I have appointed TSX Trust Company through its representative, Nicole Silvera, to act as scrutineer. Ms. Silvera is attending the meeting via telephone conference call. We will now proceed with the business of the meeting. The company has used notice and access to deliver the meeting materials to shareholders. I have been advised that on May 27, 2022, the notice and access notification was mailed to all shareholders of record as of May 12, 2022, in accordance with applicable law. In addition, the meeting materials, including the notice and access notification, Notice of Meeting, form of proxy and management information circular, were posted on the corporation's website on a dedicated website maintained by TSX Trust Company to host the meeting materials and under the corporation's profile on SEDAR at www.sedar.com. TSX Trust Company has filed with me proof of service of such mailing, and I direct that a copy of such proof of service be annexed to the minutes of this meeting as a schedule. I will dispense with calling for a reading of the Notice of Meeting. The scrutineer has also advised me that prior to the meeting, proxies were received from the holders of a sufficient number of common shares to constitute a quorum. And accordingly, I declare that a quorum is present and that the meeting to be regularly called and properly constituted for the transaction of business. I direct that the formal report of the scrutineer be annexed to the minutes of this meeting as a schedule. We are asking the meeting participants present in person here today to complete the provided attendance sheet, indicating the name and address of the shareholders and proxy holder, if applicable. Once completed, we will ask each person to leave the attendance sheet on the table at the end of the meeting in a designated area. The attendance sheet will be collected and provided to the scrutineer and to the other representatives of our transfer agent as required. I would like to take a moment to comment on the voting procedures to be used at today's meeting. Voting will proceed by way of a show of hands, except that voting for the directors of the company will proceed by way of ballot. If you are a registered shareholder or a proxy holder, you will be required to complete the ballot that has been placed in front of you. With respect to each matter to be considered at today's meeting, I will ask for a motion. Only registered shareholders or duly appointed proxy holders can make a motion or address the meeting with respect to a pending motion. Shareholders attending the meeting by telephone conference call will be able to listen to the meeting and ask questions but will not be able to vote over the phone. As the first item of business of this meeting, I now present to the meeting the company's consolidated financial statements as at and for the financial year ended December 31, 2021. Copies of the financial statements were mailed to shareholders in accordance with applicable law. The next item of business is the appointment of auditors for the ensuing year and the authorization for the Board to fix their remuneration. I would ask for a motion for an ordinary resolution that PricewaterhouseCoopers LLP Chartered Accountants be appointed as auditors of the company to hold office for the ensuing year or until their successor is appointed at such remuneration as may be fixed by the Board of Directors. Will someone move the resolution?

I so move.

The motion is now on the floor. All shareholders and proxy holders in favor of the resolution, please so signify by raising your hands. [Voting]

Contrary, if any? [Voting]

I declare the resolution carried. The next item of business is the election of directors. The meeting is now open for the nomination of the 5 directors to be elected by the company's shareholders to hold office until the close of the first Annual Meeting of Shareholders following such election or until their successors are elected or appointed. No notice of director nominations is outstanding pursuant to the company's advance notice bylaw. Accordingly, at the meeting, the only persons eligible to be nominated for election to the Board are the management nominees. Management nominates Paul Lucas, Jeff MacDonald, Susan Allen, Sara Elford and Jeffrey Nodland as directors for the ensuing year or until their successors are elected or appointed. I will now call for a motion to elect the directors. Will someone move the motion?

I so move.

The motion is now on the floor. As a result of the company's majority voting policy, it is necessary to vote by ballot for the election of each director. I, therefore, direct that a poll be taken. Each shareholder or proxy nominee should record his or her vote in respect to the election of each director nominee by marking the appropriate box beside each director's name and by signing and printing his or her name on the ballot. Once you have completed your ballot, I will ask you to place your ballots on the designated table so that they can be scanned and transmitted to the scrutineer. Prior to the meeting, I was advised by the scrutineers that the proxies deposited for the meeting were sufficiently voted for the election of each of the directors nominated. Therefore, I declare Paul Lucas, Jeff MacDonald, Susan Allen, Sara Elford and Jeffrey Nodland to be elected as your Board of Directors to serve in that capacity until the company's next Annual General Meeting or until their successors are elected or appointed. Rather than hold up the business of this meeting for the final tabulation of votes cast, I direct that the results of the poll for the election of the directors be included with the minutes of this meeting and filed on SEDAR. As there is no further business, I ask that someone move a resolution at this meeting now termination.

I so move.

All shareholders and proxy holders in favor of the resolution, please so signify by raising your hands. [Voting]

Contrary, if any? [Voting]

I declare that this meeting is now terminated. Thank you, and I'll turn it over to our CEO, Jeff MacDonald.

Thank you, Paul, and good morning to everyone joining us this morning. I'll just give a brief update on who we are and what we're doing at EcoSynthetix, and then we'll have an opportunity for some question and answer at the end. What we do is make polymers from green chemistry. And what that means is that we create ingredients and chemicals that are normally being used to replace oil-based chemistries often with health and safety concerns associated with them with an all-natural chemistry that's biodegradable and renewable. We produce our biopolymers on a patented process called reactive extrusion, and we create a dry product, which has advantages in the market due to not having to ship water around the world and creating our product. We also provide engineering solutions to make it as easy as possible for customers to implement our disruptive technologies in their operations. We use our biopolymers -- our customers use our biopolymers in 3 key markets. The business got started in the pulp and paper industry with a coating product, which is used on magazine and advertising paper and packaging products. We've had an interesting new opportunity emerge in the paper industry, which I'll share shortly. That's given that a bit of a resurgence for us in looking forward. But the vast majority of our investments over the past 10 years has been in developing a diversification strategy toward new markets. And the largest part of that investment has gone into the development of products for the wood composite industry, where our products are used as the glue that holds wood fibers together in wood panels. So if you think about flooring products or furniture like IKEA furniture, the glue that typically holds those products together is a formaldehyde-based glue, a known carcinogen. And we replaced that with an all-natural replacement. And last but not least, we work in the personal care market through a partnership with Dow Chemical, which I'm really pleased to be able to talk more about today in that they've recently made an announcement of their efforts in working with us. Key to our success in the markets that we serve is the partnerships -- are the partnerships that we've created. We couldn't ask as a small company for a better collection of partners, leaders in their -- each of their respective industries: SWISS KRONO, a leader in packaging based in Scandinavia -- sorry, Stora Enso, a leader in packaging based in Scandinavia; SWISS KRONO, who was our first customer in wood panels and a top 5 player in that market; and Dow Chemical, who has a significant home and personal care business that they're taking our all-natural ingredients into. Key customer for us is a leading global retailer of furniture products that uses our resins in their wood panel products. In selecting the markets that we addressed with our biopolymers, we went after markets that have substantial size and substantial growth opportunity for replacement using our chemistries. And you can see here that each of the markets we're serving have the substantial opportunities, and you can see the incumbent chemistries there and the size of the market opportunity that each of them represents. Increasingly important in each of these markets is carbon footprint. And we've shown that in employing our products in these industries, we could help customers achieve a substantial carbon footprint reduction by putting our products in place of the oil-based products that they're using today. And so you can see here in each of the 3 markets that we're serving, we're offering a significant carbon footprint reduction. This is important to helping customers achieve the objectives that they have stated in their own sustainability reports, which is obviously becoming increasingly important, but it's mattering more and more in dollars and cents. And we're seeing that the price of carbon, particularly in the European market, continues to increase. And so these carbon footprint reductions are actually translating into part of the value proposition that we offer to our customers. And it matters. So in the end of 2021, we were asked by one of our largest customers to participate in a study of our ESG practices. Sustainability, which I've just spoken about, is one angle, but environmental or social and governance were also critical factors in this study that was done by EcoVadis, which is one of the leading surveyors of ESG practices among companies. Last year, they reviewed over 85,000 companies, and they evaluated our practices to be in the top 1% of those companies earning their platinum rating. Again, this matters to key customers. I think it's well known that we are working with IKEA on their mission to replace formaldehyde but also achieve a substantial reduction in their carbon footprint. In their most recent sustainability report, they highlighted that about 5% of the entire carbon footprint of IKEA as a company is represented by the glues that go into their wood products. And that's exactly the mission that we're on to solve with them. We've been working with SWISS KRONO for several years now in the development of products for their wood panels. And in particular, they've launched a product called BE.YOND, which is a particle board that has the leading carbon footprint figures of any particle board in the world, the safest, healthiest and greenest product available. So what you see here is the buildup of the different standards that exist around the world for emissions from wood products, and SWISS KRONO has created a product using our resin, which exceeds all of these standards but actually also emits formaldehyde at the level of a natural tree. To move to new markets for a second, and this one is a bit of a new old market for us in that we are tapping into existing relationships that we've developed over the last few years in the paper market with our first product, EcoSphere. But EcoSphere is used at the exit end of the paper machine where the coating is applied to it. We've developed a new biopolymer that's being used at the input end of the paper machine, where the fibers come together initially to form a mat. And that mat is formed whether that's a cardboard product, whether that's a tissue product or a magazine paper product. A fiber mat is laid down and pressed together as it's formed within the machine. The stronger you can make that fiber mat, the more cost-effective you can make it. So you may not need a stronger sheet. But if you can achieve greater strength, you can actually use lower-cost fibers. And the biopolymer that we've developed allows customers to do just that. So we've been able to show across literally all applications, meaningful strength improvements that are allowing our customers to run their machines faster and probably most importantly, use a lower-cost fiber basket. In other words, they're using more recycled materials. They're using cheaper, shorter hardwood fibers, and they're using additional fillers outside of the expensive pulp inputs that they would normally use. So we're seeing a very significant value proposition here that our first customers in the tissue market have been taking advantage of since the fourth quarter of last year when we announced our first wins. And subsequent to that, we've demonstrated similar success within the packaging market and feel that in the fairly near term, we're going to be able to declare some significant packaging accounts as wins with this new biopolymer. And then lastly, in terms of news, we recently benefited from seeing Dow begin to talk about our product not only in the way that they've marketed it previously but in associating it with us at EcoSynthetix. And I think that's a great sign that they value green partnerships such as ours and that they see this as a promising enough product for their future that they've begun to discuss it in this way. MaizeCare is the brand name that Dow uses to promote our all-natural ingredients, and we offer it through them in an exclusive distribution arrangement. And we continue to develop new products alongside Dow's team to solve new application opportunities with all-natural ingredients. So our #1 priority going forward is simply to get our biopolymers into more lines and build our base of business from there, while offering our customers value in terms of performance, in terms of favorable economics and in terms of carbon footprint reduction. So with that, I'd be happy to open things up for any questions that you have.

[Operator Instructions] And at this time, sir, we have no questions from the phone line.

Okay. Well, then I'd just like to thank everyone for joining us this morning, and we look forward to updating you again soon.

Thank you, sir. Ladies and gentlemen, this does indeed conclude the meeting for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.