EcoSynthetix Inc. (ECO) Earnings Call Transcript & Summary

Thank you. All shareholders and proxy holders in favor of the resolution, please so signify by raising your hand. Contrary, if any, I declare that this meeting is now terminated. Now I'll turn it over to Jeff MacDonald, our CEO, for a brief presentation.

Thanks, Paul, and good afternoon, everyone, and thanks for joining our meeting today. If we move through the forward-looking statements on Slide 7 and on to Slide 8. As a reminder of what it is we do, we create bio-based chemicals and ingredients from natural feedstocks. And traditionally, the main natural feedstock we've used has been corn. But over the past couple of years, through some of the volatility within those natural feedstock markets, we've actually done some good work to make ourselves less dependent solely on corn and enable ourselves to use some alternative feedstocks within our basket of input materials. We take those natural feedstocks and we transform them through a process called reactive extrusion, in which we take mechanical and heat energy and turn those natural feedstocks into a polymer melt, which we then further modify with different chemical additions to transform the polymer melt into the product that ultimately gets used in the applications that we serve. At the end of our reactive extrusion process comes a powdered material that you can see there in the center photo. And in our core markets of paper and wood composite products, we provide full service and engineering solutions to make it as easy as possible for our customers to implement our solutions. Moving to Slide 9. Very important to our go-to-market approach has been to identify and partner with industry partners, which are true leaders in their respective markets. And you can see some of the names in the top left corner there of companies who have chosen to publicize their work with us as part of their overall strategy to transform their businesses through the green products that we offer in partnership with them. As a team, we've set the goal of achieving $100 million in revenue as our next milestone target. We feel that's an important step of scale to enable the business to do what it needs to do to grow further from there. And I think it's important to note that as we make our march up ramp to the $100 million in sales, those 5 accounts that we show on the left have the potential within them to deliver the $100 million in sales on their own. Of course, we do expect to be also winning additional accounts in these markets that will help us get to the $100 million and beyond, but the significance of these accounts, not only in terms of their magnitude and ability to deliver the $100 million, but as role models within their industries to influence others to be moving in this direction as well is very important as we move to this mission milestone. On Slide 10, the markets that we serve are really 3; wood composites, so wood panels used in furniture, flooring, construction; the personal care market, where we offer a line of ingredients for home and personal care products; and lastly, the first industry that the business was active in, which was the paper market, where we got started with a paper coating product and more recently have introduced a product called Surf Lock, which is a strength aid that helps to enhance the performance and reduce cost for paper-based products and the pulp that goes into making those paper-based products. On Slide 11, we've selected those markets that I just mentioned based on the value proposition that our technology holds, but its ability to address some very large, attractive markets for our products. In the wood composite market, we're replacing urea formaldehyde primarily, which is a $15 billion chemistry used in the creation of wood panels. In the paper market, we're replacing SB and SA latex and paper coatings, but also offering strength aids to help reduce cost in paper-based products. And that entire market represents over $1 billion in opportunity for us. In the personal care market, the first target that we've set with our partner, Dow, is to replace the chemistry called Polyvinylpyrrolidone, which is used as a fixative ingredient in hair care products, and that represents a $460 million market opportunity as a start in personal care. That is just the start. We have already begun to work with our partner in applications beyond just the hair fixative ingredient, but we want to keep our feet on the ground and create some wins in that market where we first got established together with Dow. On Slide 12, a key part of our value proposition today and actually often where the conversation starts in the world where companies are looking to reduce their carbon footprint is the carbon footprint impact of ingredients that they implement in their products. And we stand out as creating a very significant opportunity for them in reducing the carbon footprint when we replace those incumbent usually oil-based chemistries. So you can see the numbers here for each of the markets that we're serving. At a minimum, we're reducing the carbon footprint by about 1/3. You can see in the personal care market, it's a very, very significant change in carbon footprint versus the polyvinylpyrrolidone that we're replacing. On Slide 13, just highlighting our DuraBind product line, which are wood-based resins and catalysts for accelerating the speed on wood-based panel lines in the creation of oriented strand board, particleboard and medium-density fiber board. So I think IKEA furniture, flooring and construction products in these markets. Part of this journey in replacing existing formaldehyde resins is to remove formaldehyde, which is a known carcinogens from these products, but as importantly, has become the carbon footprint reduction goals of companies in these value chains. And on Slide 14, there's no company in the wood panel value chain more influencing and more critical than IKEA who have identified that the glue in creating their particleboard represents about 5% of their total carbon footprint as a company. We have the potential to reduce that significantly. And so obviously, this is a key product for this market space that's pursuing meaningful reductions in their carbon footprint. IKEA is an important player in that they produce their own particleboard in their own manufacturing operations. But at least as importantly, is the influence that they have on the rest of the market in setting these kind of standards for using new material and reducing their carbon footprint. Slide 15 shows the top 15 players in the wood panel market, and you can see IKEA there fourth from the bottom. With their own operations, they produce around 30% of their own wood panels in-house and then rely on the supply chain made up largely of these players on the sheet who are supplying the rest of their needs. So they'll set a standard internally, but then influence others in their direction for products that serve them. On the right-hand side of the slide, each of these wood product lines represents a $0.5 million to $3 million opportunity for us as we convert them away from formaldehyde. And I guess just to put it in perspective, on the left-hand side, that #1 player there, [indiscernible], that line, which represents 21 million cubic meters of wood panel products, that's about 40 lines of capacity. So among these players, you have more than 100 lines represented. And this is, of course, our primary focus in converting these companies away from formaldehyde resins. On Slide 16, as I mentioned, we got our start in paper and specifically in graphic paper, where we offer a coating to replace styrene-based latexes. Graphic paper remains a foundational business for us, but it is a business that's in decline with the advent of electronics that are replacing graphic paper in markets around the world. But that doesn't mean that paper is a negative place to be overall. The other markets on the right-hand side of this slide represents growth opportunities. Each of the 3 are growing markets and markets where the kind of strength we can bring with our new Surf Lock product, enable them to achieve meaningful cost reductions by replacing more expensive long fiber with shorter fibers, which are more easily grown and more cost effectively grown as well as just inert fillers, which can be added to the mix very cheaply if you can provide greater strength to that fiber matrix. This is an exciting new opportunity for us, one that we've just gotten started in, as illustrated further on Slide 17, where you can see that the drive to increase recycling rates is introducing more recycled fiber into the value chain and that recycled fiber needs to be given added strength to be used again in a new package. So that represents a very interesting opportunity for us. You can see the list of attributes on the side there. Each of those attributes is enabled by our ability to bring strength to these paper-based products. And so with improved strength, which is the #1 point there, it enables the customer to use a basket of opportunities, the numbers 2 through 7 there that help them to achieve a cost position that they wouldn't otherwise be able to achieve without the introduction of our strength aids. We're typically allowing customers to improve strength by something in the range of 15% to 20% regardless of the kind of paper product that we're addressing. And we're also enabling a meaningful energy savings by reducing the amount of refining energy that's required to create a fiber-based product. Slide 18 shows the landscape of the pulp and paper market that we're addressing with these products. And partly through the work that we've done over several years in the coated paper market, we've developed some strong relationships, which provided a nice foundation for introducing these new Surf Lock fiber strength aids. So we have 6 commercial accounts today in this space. among the top 15 players. And as I mentioned earlier, that overall, it represents more than $1 billion of market opportunity for us. And then lastly, I mentioned our partnership with Dow. Dow takes our all-natural ingredients and brings them to market under the brand name Mazecare, which they've introduced with a range of sample hair care products that you can see there in their own marketing materials. And they've now introduced us around the world to many of the leading brands who are working to adopt all natural ingredients in their formulations. Their products have achieved some early wins, primarily with niche brands, and we see some interesting growth opportunities ahead for these ingredients, which Dow has built quite a pipeline with and are quite excited about. And so obviously, that has us excited as well. Slide 20, clearly, our focus in the near term is to bring forward our products with key players in the market and achieve some wins and begin to build a revenue base that is moving us in the right direction toward our $100 million target with the right players. We're only a few short steps away from being consistently EBITDA positive, 1 large account win would actually get us there. So we're laser focused every day on achieving some wins with these customers in the markets I've reviewed here and getting us on that trajectory to the $100 million that is our target. Well, thanks again for joining us today and be happy to answer any questions that anyone has.

[Operator Instructions]

How are the sales looking for April and May as the sales were down quite a bit in the previous quarters?

Yes. We noted in our Q1 conference call that the second quarter is looking pretty much similar to the first quarter. Obviously, our business has some lumpiness in it and puts and takes, I wouldn't say it's identical, but we're still seeing some headwinds as we move through the second quarter. We're starting to see, I think, in several respects, the back half of the year looking more interesting. Our feedstock challenges appear to be alleviating. We're getting access to more starch feedstock today than we were able to, let's say, a year ago. And it looks like the pricing of those feedstocks are moving in the right direction. So that obviously helps our value proposition. And we're also seeing some good advancement in both the wood composite space and with our Surf Lock products, where we expect that in the near term, we're going to be able to talk further about some interesting new account wins and an uptick as we look toward the back half of the year. But I'll be consistent with what I said in the Q1 message. It's a tough start to the year. Markets are challenged, and so the packaging market, the paper market, the wood market, you have factories that have been curtailed for a good part of the beginning of the year as demand for their products have been down. And so that puts a headwind on us. It's been a challenging start, but we are starting to see some light at the end of the tunnel, both on the supply chain and the opportunity side.

[Operator Instructions] Paul, there are no questions at this time over the phone.

Okay. Thank you very much. Thank you to everyone that attended today. Appreciate it.

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines.