EcoSynthetix Inc. (ECO) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the EcoSynthetix 2025 Annual Meeting of Shareholders. [Operator Instructions] I would now like to turn the call over to Mr. Paul Lucas, Chair of the Board of EcoSynthetix. Please go ahead, sir.

Good afternoon, 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 and pursuant to EcoSynthetix bylaws, I'll chair this meeting. Robert Haire, the Chief Financial Officer and Corporate Secretary of the company, will act as the Secretary. We would also like to welcome those who are attending via conference call to listen into the meeting today. After the meeting, Jeff MacDonald, the Chief Executive Officer of the company, will make a presentation after which there will be a period for questions. For the purpose of this meeting, I have appointed TSX Trust Company through its representatives, Leon Lam and Humzah Yaqub to act as scrutineer. Mr. Lam and Mr. Yaqub are attending the meeting via 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 April 17, 2025, the notice and access notification was mailed to all shareholders of record as of April 2, 2025, 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.sedarplus.ca. 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 shareholder 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 the 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 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, 2024. 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 professional 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 motion?

I so move.

Sara Elford, thank you. The motion is now on the floor. All shareholders and proxy holders in favor of the resolution, please so signify by raising your hand. [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 Jeff MacDonald, Susan Allen, Sara Elford, Jeffrey Nodland and Gregory Yull 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.

Thank you, Jeffrey Nodland. 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 of 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 tables so that they can be scanned and transmitted to the scrutineer. Prior to the meeting, I was advised by the scrutineer that the proxies deposited for the meeting were overwhelmingly voted for the election of each of the directors nominated. Therefore, I declare Jeff MacDonald, Susan Allen, Sara Elford, Jeffrey Nodland and Gregory Yull 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 that this meeting now terminate.

I so move.

Thank you, Susan. All shareholders and proxy holders in favor of the resolution, please so signify by raising your hand. Contrary, if any? Seeing none, I declare that this meeting is now terminated. Thank you very much. And I'll turn it over to Jeff MacDonald, our CEO.

Thank you, Paul, and thanks, everyone, for joining us today. At EcoSynthetix, we produce a range of bio-based chemicals and ingredients that are typically replacing fossil-based chemistries, often harmful chemistries with our bio-based polymers. And those bio-based polymers start in the field and most predominantly for us in the corn field, where we're taking advantage of starch from corn which we then compound with other ingredients and chemicals through our patented reactive extrusion process to create our biopolymers, which you can see there in the middle circle as a dry powder form. One of the advantages of our chemicals are that they do come in that dry powder form, which presents cost and sustainability advantages in terms of their shipping relative to a lot of the chemistries that we're competing with, which are often water-based and therefore shipping up to 50%, 60% water around the world. And lastly, we show proprietary engineering there. That represents both equipment and people that we put in place to take our products to field and help with the industrial change process, given that we're trying to create disruptive change away from chemicals that have often been used for decades. So we can't expect to just send a jar of chemistry in and hope a customer uses it well. We have to help and make sure that, that gets accomplished the way that it should be. We apply our biopolymers very selectively, and we try to be very focused on large industrial markets that are demanding change and where we have a technical solution that we feel has merit and value to bring to that space to create that change. We have to see that there's industrial partner there, a significant player in that industry that's interested in taking our biopolymers into that space and effect change away from the kinds of chemistries that we're trying to replace. And so you can see here that we're focused really on three spaces, wood composites, the personal care market and then a little more broadly on pulp and pulp-based products like packaging and tissue. So we'll start there in the pulp-based products space. We're really excited that we've recently introduced a new polymer called SurfLock for the pulp and paper industry, which is a strength aid that brings added strength to fiber-based products that are made from pulp. So why do we need to bring more strength? You don't necessarily need a stronger piece of paper or a stronger piece of tissue. But if you can improve the strength of those products, then you can take cost out of them at the same time. There's a significant trend in the pulp and paper space in that key segments of that space are growing significantly, things like packaging and tissue tend to grow with GDP, while the softwood for us that have traditionally served them with long strong fibers are not growing to keep pace with them. So what that means is that something has to fill the gap with the lack of availability of softwood, and that's typically being filled by hardwood, which creates shorter fibers, but they are more efficiently grown and recycled fiber. To use those latter two fibers, we have to enhance them with greater strength so that they can perform more like those softwood fibers. And that's where our polymer comes in. We've consistently demonstrated a significant strength improvement by adding our SurfLock polymers to pulp and pulp-based products that our customers can then take advantage of with some of the things you see there on the right, which represents significant cost reductions for them or in some cases, just enabling them to produce a product if they're not able to get sufficient softwood fiber. In this space, we're lucky to have had our start -- our early start in the pulp and paper space. So we've been serving the pulp and paper industry with different products for about 15 years. And what that's allowed us to do is to develop some strong relationships and some credibility for now introducing this new SurfLock polymer into the space. And in a fairly short time, as time goes in the pulp and paper industry, which has been using incumbent chemistries and is generally slow to change. So we'll call it a fairly short time. We've actually converted 8 lines, which is pretty much unheard of when introducing a new chemical to this space. We've done that in relatively short order. And we've done it on both sides of this slide, so directly with the end paper companies in some cases, and that's in the form of tissue or packaging products. And also on the right-hand side, so in the first quarter, we announced a significant commercial win with one of the top pulp players on this slide as they commercialize their first mill with our SurfLock polymer. And that represents significant opportunity to us. So while we talk about individual lines having opportunity for us in the range of a few hundred thousand dollars to $3 million, a pulp mill can represent up to $50 million to $60 million of opportunity for us. So let's start with the first player and the pulp market is a very significant new opportunity for us. Where we got started was in the smaller end of the scale in the tissue market. There are many, many tissue mills around the world. They tend to be smaller in size and less complex. And so it's been an easier place for us to get started. And you can see a case study here where we've managed to introduce SurfLock and accomplish about a 30% increase in strength. Again, you don't need to have a stronger tissue, so that customer was looking for that strength to be able to use it to increase the productivity of their line predominantly. If you can make a stronger role of tissue paper, you can pull it faster and with greater force and therefore, make the line go faster. They were also able to get some additional benefits through having no impact on softness by adding additional polymer to it, and they reduce the dusting on the line, which is a key attribute of tissue by up to 50%. So we managed to achieve in fairly short order, some wins here as a validation, and we've continued to fan out across the tissue industry, which represents the most of our trialing activity in the market today. So in the market today, you can see in this slide, the global leaders in the tissue industry. We've managed to, again, in fairly short order, convert 5 tissue mills, including one of the top 15 players in the world. And we continue to expand out, build the pipeline broader as well as moving things along more towards success. So that's pulp and paper. We'll shift to wood composites where our journey in this space started by having a market leader come to see us and work with us on a polymer to eliminate formaldehyde from their glues in their wood-based panels. Formaldehyde has been the incumbent glue in this space for decades because it works well and it's really cheap, but it also happens to be a carcinogen. And so there was a strong motivation from a health and safety and marketing perspective to want to get rid of formaldehyde from these products. And that's where our customers' journey with us started. That journey has been driven by one of the clear market leaders in the wood panel space and in the furniture industry, and it's now become mainstream in their marketing materials for how they're promoting themselves as changing the game with respect to healthy products and lower carbon products. So mainstream on their website is noting a different glue with the same result, and that's a bio-based glue. Why do we have confidence that, that change is going to continue? Well, that market leader has a track record of consistently leading the market and changing away from old harmful chemicals to something newer, less harmful and with a lower carbon footprint. You can see a track record of many years here, of which formaldehyde is now at the top of the list for change. Not only is the formaldehyde elimination an important objective for this customer, but they've also determined that wood-based glues represent about 5% of their entire carbon footprint as a company. And those two drivers leading this have caused them to want to move away from their existing glue systems by the year 2030 and achieve roughly a 30% carbon footprint reduction in doing so. So a big priority for them that is well down the path in terms of validation and commercialization for us in supporting that. What does it mean to us in the longer run? There are over 1,000 wood panel mills around the world. We happen to be working with two of the market leaders on an ongoing basis today. We're focused on them because they are both change and thought leaders, which we believe will provide a watershed of opportunity by leading others toward change away from the incumbent glue systems to a bio-based glue. And the last one I'll focus on is the personal care space. So the big driver in this space is the move to all natural ingredients for personal care products. Here, we're replacing a chemistry called polyvinylpyrrolidone with our bio-based polymer. And polyvinylpyrrolidone represents about a $500 million market within predominantly hair fixatives, but also in color cosmetics and other personal care products. Here, we don't have the applications development or marketing expertise in-house to take products like this as far as they need to go within the personal care space. And so here, we decided to partner with a global market leader to help take our products to market and develop the applications to do so. The market leader is Dow Chemical. So Dow has private labeled our product as their maze care brand, and they're taking it to market with several application examples and samples here to achieve commercial success, which they're doing on a steady basis. It got started in hair care with hair fixatives. And that's where the initial successes have been achieved. But more recently. They've also introduced the line of skin care and color cosmetics applications, which they're very excited about taking this product to the next level. Significant investment in marketing and applications development here by them, and we're obviously very pleased to be tied to a market leader taking our product to market this way. So those examples talk to the performance and the need for these biopolymers, and performance and economics are definitely a must in any market that we're going after. But often, the conversation is starting with carbon footprint reduction today, and we really shine there. So you can see in each of the applications that I've mentioned, we offer a significant carbon footprint savings relative to the incumbent chemistries that we're replacing, anywhere between, as you can see on this chart, 65% up to 135% reduction in carbon footprint compared to those incumbent chemistries. We've earned some good recognition for that sustainability impact, but also on our social and governance initiatives. And a couple of the global leaders in recognizing ESG performance have noted our performance. So we're getting that kind of external validation. We've been ranked for several years in a row by both of these organizations, Corporate Knights as one of the top 50 corporate citizens in Canada. And we're one of the top 1%, achieving a platinum rating by EcoVadis, which on an annual basis, rates over 125,000 companies on their ESG performance. And lastly, our goal, the journey we're on as a team to achieve our next goal is to get to $100 million in sales, and we're confident in getting there really largely because of the partners that we're working with in the industries we've chosen to serve. So we have blue-chip partners in each of those three spaces that I walked us through. And the two main ones, the pulp and paper industry and the wood composites industry. Each of our blue-chip partners represent somewhere between $50 million to $60 million of opportunity within their near-term goals somewhere between 2027 and 2030 to achieve their goals of formaldehyde reduction or pulp strength enhancement. Our partners have big goals, and that pulls us along with $50 million to $60 million of opportunity for each of them. So we actually don't have to drive anywhere else if we chose to achieve this $100 million target. But of course, we have other prospects on the go. And so we feel that our opportunity goes much beyond us. We like to keep our feet on the ground and have a line of sight to our goals that are achievable. We feel this one is within our sights today. So lastly, before closing things off, I'd like to address our current Board of Directors changes. At our Board meeting following the conclusion of this AGM, the Board expects to appoint Jeff Nodland as Chair. Jeff has served on the Board since January of 2016. He is a veteran in our industry, specifically consumer packaged goods and chemicals. And he's been an effective and thoughtful contributor to the Board during that period. I'm excited to continue working with Jeff. We're also pleased to welcome our new member elected at this meeting. Greg Yull is the former President, CEO and Board member of Intertape Polymer Group, which was publicly listed on the TSX. Greg has deep experience in industrial manufacturing and sales, including packaging and adhesives. We look forward to benefiting from his expertise and background on the board. And lastly, these changes were a result of the retirement of Paul Lucas, who just brought the gavel down on our last meeting together as our Chair and Board member. I've worked with Paul during the last 10 years. We've seen many positive changes that began with him taking over the role of Chair. He was instrumental in establishing a very functional and effective board to lead us. And while we're still a relatively small company, I believe he helped establish the strongest possible governance practices and a strong board culture for us. So on behalf of the company, I'd like to thank Paul for these contributions and for the constructive approach he's consistently taken with myself, our Board and our team. Thanks, Paul.

Thank you, Jeff.

And with that, we'd be happy to take any questions you may have.

[Operator Instructions]

We have one question here from the floor, operator.

Just on geography, the United States, how much of -- what percentage of the market is that?

Yes. So we don't specifically break it down in our public figures, but we can say it's a relatively small percentage of our market. And if the root of your question is more of the tariff impact, we have no impact from the tariffs at this point, either in the raw materials that we import from the United States into our manufacturing facility here nor in the products we produce and sell to our U.S. customers. So we don't see any immediate impact. And maybe just to add a little bit more color to that. The markets that I shared with you today, the largest opportunities that we're pursuing are actually in Europe and South America. So we're a bit insulated from any of the -- beyond tariffs, any of the uncertainty associated with the U.S. market today.

I guess, but you'd like to crack that market in some way?

Absolutely. Yes, absolutely. There are many big players there. One thing that we have seen is there is a little bit slower motivation to change as a result of the drive to have a lower carbon economy. And often, that's where our discussions start. You get an audience every single time in Europe, if that's your topic of discussion, not always the case in the U.S. market. But it will come. And some of our products, the SurfLock product for pulp strength is, first and foremost, all about cost reduction. So everybody needs cost reduction. So the conversations there are going pretty well for that product.

Canadian mills?

Yes. Yes. They are using the product. We have Canadian customers today. Yes.

And I'm showing no further questions at this time. I would like to turn it back to Jeff MacDonald for closing remarks.

Okay. I'd just like to thank everyone again for joining us today, and we'll speak to you again soon.

And this concludes the meeting. You may now disconnect.