EcoSynthetix Inc. (ECO) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the EcoSynthetix 2025 Fourth Quarter and Year-End Results Conference Call. [Operator Instructions] could cause actual results to differ materially from those projected in the forward-looking statements For more information on EcoSynthetix risks and uncertainties related to these forward-looking statements, please refer to the company's annual information form dated February 17, 2026, which is posted on SEDAR. This morning's call is being recorded on Friday, February 20, 2026 at 8:30 a.m. Eastern Time. I would now like to turn the conference over to Mr. Jeff MacDonald, Chief Executive Officer of EcoSynthetix. Please go ahead, sir.

Thank you. Good morning, and thank you all for joining us today. Yesterday afternoon, we reported our 2025 fourth quarter and year-end results. Sales were up 9% in the quarter compared to the same period last year, and they were up 12% for the year. We also reported our first full year of positive adjusted EBITDA with $400,000 for the year, an improvement of more than $1.3 million from fiscal 2024. What's most exciting to us in those numbers is that the growth is coming from where we want it to. Our 3 key strategic end markets: pulp and tissue, wood composites and personal care, each posted record results showing significantly more growth than the overall business. The growth from the new strategic end markets in 2025 more than eclipsed the erosion in the legacy end markets. Our diversified product strategy is working. We've illustrated our progress here on Page 4 of the presentation. Our sales into the strategic markets, which we define as pulp, tissue, specialty packaging, wood composites and personal care is now more than 70% of the business. At the same time, our sales into the graphic paper end market, which was 60% of the business in 2021 is now less than 30%. That is a dramatic transition. This strategic shift has also made a significant improvement to our margins, given the value our offerings provide to our customers in these strategic markets. So what's driving that momentum? We now have 15 lines running our SurfLock products to enhance fiber strength in pulp-based applications. We've won 8 of those new commercial accounts in 2025, which shows that the momentum is building. The distribution and service provider partners that we're working with are telling us they haven't seen a new chemistry crash the scene like this in a very long time. The ability for SurfLock to convert customers has our partners all very excited at a time when their customers are asking for solutions to the growing challenges with fiber availability and cost. We appreciate that it may not feel like we're moving fast enough for investors, and we share your appetite for faster growth. The service provider and distribution partners have the context of the pace and what it takes to make change in the pulp and paper industry, and they're excited. The tissue end market is moving faster for us as the lines there are smaller in scale with less complexity in their fiber mix. Given the scale, they also represent smaller opportunities for us in terms of volume. But there are more of them. These lines typically use hundreds of thousands of dollars worth of our material annually. And these earlier wins are building experience and confidence within our network. Our impact is clearly happening rapidly when we introduced SurfLock. We addressed the supply shortage and high cost of long fiber by working with shorter fiber that is less expensive and more available now and in the future. By using our SurfLock strength aids, the manufacturers are able to increase the strength of the final product with less expensive fiber and achieve further benefits in production efficiency, energy usage and in some cases, improved product quality. We continue to explore new distribution partners in this area as well. The success of our partners is helping to drive the awareness of SurfLock, globally. Even since our last call, we've made progress with multiple new partners with some progressing from lab work to mill trials in a relatively short time frame. The momentum in the tissue end market is clearly taking hold. The pulp end market is a large opportunity. Our first commercial account is a top global pulp manufacturer. We believe the pulp end market will be one of the major growth drivers of the business. Our basis for that belief isn't our forecast. It's what our strategic account is telling the market. We aren't making it any better or worse. We're just piggybacking on what they're saying publicly. Amid a fairly cautious sentiment from them about the pulp and paper industry overall, they've made a specific point of saying this does not impact their belief and the investments they've made in the enhanced pulp offering and their value-added products. They've provided greater granularity on their pipeline of opportunities. They've shown how onboarding one of their customers to enhance pulp is a step-by-step conversion and a significant process of change. These large-scale lines don't switch chemistries like a light switch. In painting this picture for the market of what they've accomplished to date and what they see as the opportunity going forward, they recently updated their addressable market for enhanced pulp, increasing it by 50% from what they were reporting just 6 months ago. It's important to mention that they became a commercial account of ours just 1 year ago introducing a brand-new product to the market in an industry that takes some effort to change. And in that short period of time, they've already grown to become one of our top 5 accounts with the opportunity to grow much larger in the near term. This is still the early innings, but you start to get a sense for their belief in the value they're bringing to the market. They're winning new business by turning pulp from a commodity into an innovation that delivers greater value to their customers by reducing cost, which is why our account is making the investment they're making and increasing their addressable market. And we couldn't be more excited about that. We believe our strength aids have a compelling value proposition across the pulp, tissue and packaging end markets. We know these markets and the players in them well. We've spent years building relationships and trust through both our earlier legacy offerings and now our strength aids with the largest players in the market. This puts us in a great position to continue to grow our pulp-based offering. On wood composites, we posted significant growth in this end market for the year. The international retailer, which is a key account of ours, continues to make steady progress. We help them improve their economics through the course of the year with continued innovation on our end. At the same time, the commodity markets were favorable as well, which supported the value we offer. The economics were instrumental in the improved uptake that we saw from them and through the start of the year, it's steady as it goes. Our primary role today is to help support them as they push to make good on their 2030 commitments to move to bio-based glues across their own network and with their supply chain. As a reminder, they produce approximately 30% of their own wood panels with the remainder procured from other suppliers. There is a tremendous amount of work to be done to achieve that 2030 target. We're engaged with both the international retailer and their other suppliers. And we've already done a significant amount of technical work with the other suppliers. We're at a stage now where it's a discussion between the retailer and their suppliers on how they want to move forward together. We're by their side helping to drive the agenda and smooth any potential hurdles to adoption. On the personal care front, we saw record volumes in the fourth quarter and in fiscal 2025, albeit still off a small base in earlier years. Our development and marketing partner, Dow is excited by the progress they're making in building this channel. The shift to all natural ingredients remains a top driver in personal care. We believe some of the more recent volumes were building inventory at Dow as they prepare to enter a new region with their MaizeCare offering. We continue to believe pulp, tissue and wood composites are the core needle moving end markets for us. Personal care is a warrant on our foundational growth markets. However, based on Dow's engagement and progress, I'm becoming even more confident in the opportunity for us in personal care. With that, I'll turn it over to Rob to review the financials. Rob?

Thanks, Jeff, and good morning. Net sales were $5.9 million in Q4 2025, up 9% or $500,000 compared to the same period in 2024. Annual sales were $20.8 million, up 12% from 2024. The improvement in the quarter was primarily due to higher average selling price as a result of product mix. The improvement in the annual period was primarily due to higher volumes of $1.6 million or 9% and a higher average selling price accounting for $700,000 or 3%. Net of manufacturing depreciation, gross profit as a percentage of sales was 38.1% in the quarter and 33.6% in the annual period compared to 34.4% and 33.2% in the same periods in 2024. The improvements were primarily attributable to higher average selling price, partially offset by higher manufacturing costs. Gross profit was $2 million in the quarter, up 27% or $430,000 from the same period last year. The improvement was primarily driven by higher average selling price, partially offset by higher manufacturing costs, both attributable to changes in product mix. In the annual period, gross profit was $6 million up 14% or $730,000 compared to 2024. The increase was primarily due to higher sales volumes. SG&A expenses were $1.7 million in the quarter and $6.2 million in the annual period compared to $1.8 million and $6.5 million in the same period of 2024. The improvement in the annual period was primarily due to asset relocation costs, which we incurred in 2024. R&D expenses were $430,000 in the quarter and $1.6 million in the annual period compared to $360,000 and $2 million in the same period in 2024. The change in the annual period was primarily due to higher product scale-up costs incurred in the prior year as well as lower asset depreciation. R&D expense as a percentage of sales was 8% in the annual period. Our R&D efforts continue to focus on further enhancing the value of our existing products and expanding our addressable opportunities. Adjusted EBITDA was $480,000 and $420,000 in the quarter an annual period, respectively, compared to $92,000 and a loss of $860,000 in the same period in 2024. The $390,000 improvement in the quarter was primarily attributable to higher gross profit adjusted for noncash items, the $1.3 million improvement in the annual period was primarily due to higher gross profit and lower operating costs adjusted for noncash items. We now have reported a positive adjusted EBITDA in 5 of the last 6 quarters. And as Jeff mentioned, this is the first full year of being positive adjusted EBITDA on a full year basis. As of December 31, 2025, we had $29.6 million of cash and term deposits compared to $32.2 million as of December 31, 2024. During Q4, we invested $400,000 in NCIB to purchase and retire 118,000 shares. And in fiscal 2025, we invested $1.4 million to purchase and retire 463,000 shares. We have also increased our working capital investment this year primarily due to $1.8 million higher finished goods inventory and accounts receivable compared to the prior year. We have demonstrated our ability to responsibly manage our cash reserves through multiple cycles while continuing to invest in our long-term growth strategy. With that, I'll turn it back to Jeff for closing comments.

Thanks, Rob. Our key end markets performed really well in 2025. Volumes in each of pulp, tissue, wood composites and personal care reached record levels. We've lapped the depressed demand in the legacy end markets. We reported positive adjusted EBITDA on a full year basis. We have the production capacity in place to more than 5x the business from these levels without the need for any incremental capacity investments. We appreciate that it would be better if the results and the momentum we are building were moving faster. We believe we're still in the early innings of the opportunity from these more recent strategic end markets. We've won 8 new SurfLock lines in 2025. We've expanded the number of channel partners we're working with to introduce SurfLock around the globe. And our key strategic accounts in pulp has just surpassed its first anniversary with us with an increasingly optimistic view toward their opportunity. Our key strategic account and wood-based panels remains committed to its 2030 target for the complete transition to bio-based glues. And Dow is building strong engagement with multiple parties and entering new influential regions with their all-natural offering for personal care products. We're engaged with the right players in our core end markets to deliver for shareholders. And with that, I'll ask the operator to open the call up to your questions.

[Operator Instructions] You first question comes from Brian Morrison.

Jeff, can I just start with the pulp -- can I just start with wet end segment. The sequential contribution from your major pulp client was modest. It's obviously very good on an annual basis. In the interim though, in their presentation, they're even expanding or there's a growing structural gap for softwood pulp and they plan on accelerating fiber to fiber with their vertically integrated growing tissue operations. Just reconcile what they're saying relative to your orders? And what is the catalyst for maybe a material ramp in their production volumes to meet their 2028 targets?

Yes. Thanks, Brian. Yes. I don't think we can or we wouldn't spend it any better than they have. And I guess, I'd just remind everyone that it was in the July time frame when they stepped up their demand for our product. And we talked about them through the course of 2025 being something in the neighborhood of a $3 million account, and they made good on that. I think the other thing that maybe we should just ground people in is the supply lines that we're working with from our inputting ingredients, our raw materials that go into creating SurfLock to holding SurfLock to be able to meet their demands, to a long transit across the ocean to their facilities, to them then holding SurfLock to support their production operations and ultimately then holding enhanced pulp to support their customer needs. So it's a pretty long supply line is what I'm trying to say. And so there's definitely going to be some lumpiness in our orders, and we've seen that since they got started with us a year ago. But overall, I think they did what they said they were going to do within the year. What's the catalyst? I think they've also really laid that out nicely in some of the recent investor sessions where they go into great detail in both the process that they go through in converting customers and what that takes in terms of manpower and time. And they've even given some granularity into the pipeline that they're building. I think what we saw in the last year was the result of the initial pilot work they were doing with early customers prior to them becoming commercial with us. And they ended up making good on what they said they were going to do through the year. So I don't think we can spend it any better than that. The catalyst for them is going to be having the people that they've now put in the field with great case studies from their initial work, now replicating that in the pretty significant pipeline that they've developed. So it's just -- it's them doing that work on that pipeline and that process that they've illustrated to their investors. And I won't step outside of just echoing what they're telling the market, we couldn't say it and shouldn't say it any better than they do.

Okay. So -- but in your press release, you mentioned orders to support production from your pulp client for a second mill. I'm not sure -- I'm not clear really on the read-through. When could they -- why are they ramping production at a second mill when they could materially ramp at the first? How should we interpret this?

Yes. So we don't have great visibility into their strategy and nor should we disclose it if we did have better visibility. But I guess I'll say that pulp is not pulp at every mill. Trees are not trees in every different part of the geography. And so pretty clearly, they're dealing with some variability in what is a natural feedstock. So it does have to be proven when it moves somewhere else. We also know that they serve different regions and customers from different mills. So assumption on our side is that, that's driving the strategy to have it at an additional mill. But yes, we don't have great clarity on that. Our job is really just to be there by their side when they go through the trialing program at the second mill, which we're -- we've got it on the calendar to be there.

Okay. So I guess from their perspective, to solicit the pulp benefits from SurfLock, they would have to implement SurfLock or you would think it's likely in their internal tissue facilities that should grow substantially through recent acquisitions. Would you agree with that? And when you think of the 8 new lines that you were able to achieve this year, should that then be a low bar for 2026 based on the acquisition and the addition of new service providers you have?

Yes. Again, we don't have super granularity into exactly how they're deploying their enhanced pulp, but I think it's safe to say that they've already implemented in some of their existing tissue operations before new transaction that I think you're probably referring to. So that's happened for sure. And maybe if we think about the on our side, not the enhanced pulse side on the direct side, if we think about the 8 lines that we won in 2025, those are all coming from the first 2 service providers that we established. We now have 8. We're in discussions with 3 more, which I think should be partners within the first 6 months. So that's the best math I can give you. But service provider partners that we brought on 2 years ago as our sort of pilot activity have yielded the 8 new wins we had in the first year. Safe to say the others are at work now building similar pipelines.

Okay. Maybe 1 or 2 more questions. You stated earlier that in paperboard or containerboard, you're seeing much improved trialing, can you just elaborate on what's driving this commentary and maybe what kind of turnaround time you can see from results to translate into revenue? You've been down this road before with these players?

Yes. I'm not sure -- that might have been a misunderstanding. I'm not sure we said that there was increased trialing activity. There's good activity. I will say that. I think maybe in the early days, we underestimated the complexity in paperboard of the fiber mix. So tissue tends to be a fairly steady and usually a virgin fiber mix that we're working with. Quite predictable, not a lot of added chemistries that are going into the mix, and that's very different from packaging where on a daily basis, you can have shifts in long fiber, short fiber and recycled fiber going into the mix. And so dealing with that adds some complexity for sure. There are also additional chemistries that are used there that we've had to understand and develop our own capability to work with those chemistries. In the last -- yes, it's just 4 or 5 months, we've had some fantastic learning in that space, some of that through the service provider relationships we have and some of it through some sort of step back development work we're doing. And that's [ fed ], I think, an early approach to a new way of looking at this application and the pipeline. Big results at the end of it, which all the service providers are very excited about. That's what they all see as the ultimate goal. And we're getting some good early traction with what I would say is a better understanding than we had in the early days of SurfLock. In the meantime, they built a great understanding of the application of our product through tissue and have gained a lot of confidence from that. So I think it's been a success with some learning on the packaging side that we now need to build on.

Okay. Last question. I guess, personal care. It seems to be moving quite quickly, but on small numbers that makes it feel maybe a little bit glacial. What are we seeing in the potential for larger orders from key brands in this ultra high-margin business?

Well, we don't see it directly. So it is all secondhand. We do see the excitement of our partner. We do know that they are working on some of these big brand opportunities. We also know that sometimes there are loop backs to the reformulations when you're talking about taking a mainstream brand on the shelf and making a significant change to it. So we do know that they're working through all that, and they remain excited about some that are I'd say, closer to the goal line. The other, I think, really important thing that we're seeing in their pipeline is that in the earliest days of MaizeCare, we saw a lot of not just emerging brands, but emerging companies, sort of new to the scene, willing to take a risk on something brand new and they were successful in introducing those, both Dow and those end customers. And I think that woke some people up. The next phase of what we've been seeing for the last year and a bit has been some of the big CPGs transitioning some of their smaller brands into MaizeCare. So we now see wins from their pipeline, with some of the big 5 personal care companies that ultimately, I think that they see the big prize in converting some of the big brands. So I think it's a step-by-step way of building some confidence and getting some good results step-by-step as well. I think it's something that for them, it goes beyond just the success of MaizeCare. It's actually helping them to carry in some of their other complementary products to help customers reformulate things. So it still remains from what we see, a pretty big thing for them.

Okay. I guess just -- you're clearly making progress on all fronts here with record business in each of these new markets. and I know you're not likely commit to a time line for your $100 million top line target. But how are you thinking about its evolution and your ability to still achieve that figure?

100% committed to it, 100% excited that it's still a real goal for us. If you just think about the large pulp player, the recent step-up in addressable market that they've put out there, like that has us close to that opportunity just following them. And it's clearly being proven out there that SurfLock can be much bigger than that. We're introducing it now to some new geographies that have tremendous growth potential. And similar to what we've seen in our initial introductions in Europe and North America, we're seeing some really excited people in other geographies now as well. So yes, it's a matter of time, but it for sure is still there as our goal.

Your next question comes from Jeff Schacter with TD Wealth.

A few questions. Could you kind of break down how many lines in the different verticals you're currently running or on right now?

I think we gave more granularity than we ever have on SurfLock just to give people some context of what we've done and what is in that market in a fairly short period of time. So we're on 15 lines with SurfLock. Otherwise, I'll report -- what we have reported, we're on 2 lines with our key strategic customer in the wood panel market. And I'll say many, many lines through Dow's work in MaizeCare, albeit in largely in emerging brands, but in a few sort of larger volume brands that they've been able to win as well. That's probably all the granularity we can give in terms of line wins.

Okay. And on the -- like since going commercial with the pulp clients, have you noticed like is there now a defined base load that is -- you mentioned lumpiness, but is there a defined base load that is kind of building now? And you also announced -- so that's the first question. And the second part of that is, you're moving to a second-line trialing. Do you expect that to be a commercial line in the coming? Is there any clarity on whether that can become commercial this year?

Yes. So to the first question, I think the base load is what they told us back in July as they had established their first customers. And we said at that time, we're at kind of a $3 million annualized run rate. I would take that as the base load with what we all expected some growth from there through 2026 as they've introduced this to new customers in their pipeline. But that if I look conservatively at a base load, that would be the baseload, and that's consistent with the orders we've seen over the long run. They do come in lumps. They do come in fits and starts, but they did almost to within $100,000 make good on what they said they were going to do through 2025. The second line, commercialization, unclear as to exactly what they want to do. But what has become clear to us is that these guys don't just go off and do science projects or trials with no intended outcome. So when they say they're moving to a new line and it's a very significant line. We take it seriously. We're there to support them. And I believe they probably have some good commercial goals coming from that. Imagine there's specific demand from customers that, that line serves.

Right. So a new set of customers potential that could be coming. And how is the sort of the word in the industry at large? Like are you seeing interest beyond sort of these core partners, early adopters? How is the momentum and realistic momentum to start something up this year with others?

Yes. So probably the best color I can give on that is I've met to start the year with 7 of our partners and the enthusiasm they have is clear. Some of them came to us through word-of-mouth, actually. Most of them we proactively engaged and did work with them, but some of them came to us through word-of-mouth when they had heard what was being accomplished in other regions. So that was pretty exciting. These guys are all entrepreneurs. They wouldn't spend time on stuff if it didn't really make good sense for their own profitable growth, and they've all invested significant time with us and with their customers using SurfLock. So that's kind of the best indicator I see. We've had yes, some interesting calls from other people who are impacted by SurfLock in the market as well. And -- so clearly, we're waking some people up with the early results.

Okay. And then finally for me, on the graphic paper side, has that decline -- like hit it's peak low? How do you put it in context for how it impacted last year to kind of break out the 2 the area of sort of the traction versus the area of growth of the new parts? Can you better discuss that? And was there any U.S. Canadian dollar impact on the quarter? That's it for me.

No. No U.S. Canadian dollar impacts in the quarter, just to knock that one off. Sorry, Jeff, I lost my train of thought...

Yes, it was just more of the graphic paper like whether it's reached peak low and how it breaks out sort of the decline versus the growth of the new areas?

Yes. I think maybe the easiest thing for everybody is to think about how we all use graphic paper today. Most people answer less and less, and that's showing up in the numbers globally. It's not going to fall off the cliff in any given day, but it's still declining by double digits on an annualized basis. We're lucky to have a few customers that have remained strong in those spaces to have our own baseload of that business, which I would say financially isn't going to be as important to us going forward for sure. But strategically, each of those companies that remains strong and an important customer to us in graphic paper, they're all doing work in SurfLock without exception. So those relationships are super important to us going forward. Each one of them is a major player. Each one of them has a real interest in SurfLock for other areas of their business.

[Operator Instructions] Your next question comes from [ Gerry Wimmer ] with [ Investorfile ].

Congratulations on the good year.

Thank you.

Just wanted to look forward through this year. I mean, for 4 quarters in 2025, we saw revenue -- quarter-to-quarter revenue growth for all 4 quarters -- as we look to 2026, do you see that trend continuing?

Yes, we're not going to give guidance. We will say, I guess, just the start of the year that there was definitely in the case of one important customer, some inventory build in December. So yes, we could see a few headwinds in the first quarter. Nothing significant that causes me any concern. The most important things keep driving ahead. And I would say the pipeline in each of those areas that we just discussed in the call, the pipeline looks great for that growth to continue through the year. So I think we're still out of size and we rely on some very large customers within that small size where we'll still see some lumpiness from time to time, but the upward trajectory is really clear, both in top line and profitability.

Okay. How should investors look at your EBITDA? You flipped to positive? Do you think that stays consistent?

Yes. Yes. I mean it wasn't a windfall like in any 1 quarter. As Rob said, for the last 5 quarters, we've been EBITDA positive. We expect that to continue and grow. The business is now structured in a way that as the top line growth happens at these improved margins, most of that is falling to the bottom line. So I think we're really going to start to see some great bottom line results as we get each step of top line growth.

Okay. And gross margins, how should we model that, given that most of your business is coming from new accounts, going into 2026, gross margins will be similar to Q4?

Yes, Q4 was a good margin quarter. We had the best mix we've ever had. I would look at 2025 on a full year basis, probably to think about that in the right way. We introduced in the presentation today, the view on the business of how it's transitioned. And you can see how the margins have improved. I think now that those new strategic markets are contributing in the 70% range, I think we should assume that 2025 is probably a good benchmark year for where we see our average margins for now.

Okay. How should investors model OpEx? If I took a look at the fourth quarter, I noticed your OpEx came down year-over-year. Looking at fourth quarter at OpEx as a percentage of revenues or absolute, how should I model that for 2026?

Yes. We'll see a little bit of growth in support costs as we expand our support for the growth markets that we have, but nothing substantial. It will be sales and support people. The one thing in looking at our OpEx numbers compared to last year is, we did have what we would consider to be some onetime OpEx results last year, which didn't recur this year. So it wasn't like it wasn't that there was a significant decline or that we underinvested anywhere. There were some onetime costs associated with scale up that just didn't recur this year because we got those products scaled up. But I think 2025 represents a good baseline where you'll see like inflationary growth. And then we'll make some strategic investments in personnel to support good customer growth in the markets we need to. We won't skimp on that.

Do you envision that the rate of growth in revenues will exceed the rate of growth in OpEx through 2026?

100%. Absolutely.

Okay. Fair enough. And finally, EcoSynthetix is relatively an unknown company still in the small-cap community. For 2026, are you looking to be more active on the IR front telling the story to small-cap investors?

Starting week after next for this calendar year anyway. So I'm not sure if we have it up yet, but I'll be making a reappearance on small-cap discoveries. So that kicks off the year. And then we've got some other conference appearances planned through the course of the year. Definitely want to get the story out there more broadly.

Okay. I look forward to things progressing and the name EcoSynthetix getting into more investors' eyes.

There are no further questions at this time. I will now turn the call over to Jeff for closing remarks.

Thanks again, everyone, for joining us today and look forward to talking to you again soon.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.