TSO3 Reports Fourth Quarter and Full Year 2017 Results
TSO3 Reports Fourth Quarter and Full Year 2017 Results
QUEBEC CITY and MYRTLE BEACH, SC, March 20, 2018 /PRNewswire/ - TSO(3) Inc. (TSX: TOS) ("TSO(3)" or the "Company"), an innovator in sterilization technology for medical devices in healthcare settings, reported financial results for the fourth quarter and year ended December 31, 2017.
2017 Fourth Quarter Financial Summary
-- Revenues increased to $5.8 million, as compared to $5.1 million in the
third quarter of 2017 and $3.7 million in the fourth quarter of 2016.
TSO(3) shipped 50 STERIZONE(® )VP4 Sterilizers to Getinge Infection
Control AB, the Company's exclusive distributor, and recorded revenue
from sales of this equipment and associated license fees and
consumables. The Company shipped 44 sterilizers to Getinge in the third
quarter of 2017 and 30 sterilizers in the fourth quarter of 2016.
-- Gross profit was $2.3 million, or 40% of revenue, as compared $2.0
million or 39% of revenue in the third quarter of 2017. Gross profit was
$1.0 million or 28% of revenue in the fourth quarter of 2016, or $1.3
million and 36% of revenue on a non-IFRS basis after excluding a
one-time write-down of $0.3 million for obsolete raw material inventory.
-- Research and Development (R&D) expenses were $1.8 million, as compared
to $1.6 million in the third quarter of 2017 and $1.3 million in the
year-ago quarter.
-- Sales, General and Administrative (SG&A) expenses were $2.0 million, as
compared to $2.1 million in the third quarter of 2017 and $1.8 million
in the year-ago quarter.
-- The Company's net loss was $(1.4) million or $(0.02) per share as
compared to $(1.8) million, or $(0.02) per share, in the third quarter
of 2017 and to $(2.1) million or $(0.02) per share in the year-ago
quarter.
-- The Company had $14.8 million in cash, cash equivalents and investments
and no debt as at December 31, 2017, as compared to $16.1 million and no
debt at the end of the third quarter of 2017.
-- Cash used by the operating activities was $0.7 million, as compared to
$0.6 million in the third quarter of 2017.
2017 Full Year Financial Summary
-- Revenue increased to $19.7 million in 2017, which included shipments of
170 STERIZONE VP4 Sterilizers and associated accessories and consumables
to Getinge, as compared to $13.3 million in 2016.
-- Gross profit increased to $7.7 million, or 39% of revenue in 2017, as
compared to $4.1 million, or 31% of revenue in 2016, mainly related to
growth of higher gross margin consumables sales and production cost
reductions of STERIZONE(®) VP4 Sterilizers which more than offset a
decrease in gross profit contribution from accessories revenues.
-- R&D expense grew to $6.2 million from $3.5 million in 2016 as the
Company invested in personnel and other expenses associated with
expanding its regulatory claims and its laboratory in the United States.
-- SG&A expense grew to $8.7 million from $6.5 million in 2016 as the
Company grew its sales and marketing and other management team members,
and recorded $0.8 million of additional SG&A related non-cash share
based compensation expense.
-- The Company's net loss was $(7.5) million or $(0.08) per share, as
compared to a net loss of $(4.4) million or $(0.05) per share in 2016,
or a 2016 non-IFRS net loss of $(5.7) million or $(0.06) per share when
excluding one-time items (see Supplemental Non-IFRS Financial Measures
below).
Fourth Quarter 2017 and Subsequent Event Operational Highlights
-- The Company announced that it had further dialogue with US Regulators in
connection with their recent request for additional information (AI)
regarding the Company's submission to extend claims of its STERIZONE(®)
VP4 Sterilizer to include terminal sterilization of duodenoscopes and
that the Company believes that the information it has provided to the
regulators addresses the majority of items listed within the initial AI
request. Subsequent to year end, the Company filed its response with US
Regulators which it believes addresses all remaining requests.
-- The Company entered into a co-commercialization agreement with Getinge
in a joint effort to increase sales to end users and optimize the
customer experience. This agreement allows TSO(3) to repurchase 100
STERIZONE(® )VP4 Sterilizers from Getinge at a favourable discount and
sell them directly into the US and Canada alongside Getinge. Getinge and
TSO(3) agreed to a customer selection mechanism to prevent the
likelihood of channel conflict.
Management Commentary
In 2017, TSO(3) made progress in components of its operations. The Company expanded its training with Getinge, installed more STERIZONE(®) VP4 Sterilizers with Getinge in end user facilities, and submitted for additional US claims for the STERIZONE(®) VP4 Sterilizer to include duodenoscopes.
Beginning in November of 2017, TSO(3) recruited and trained a team of five capital equipment commissioned sales leaders, along with clinical specialists and technical service support personnel. This was followed, subsequent to year end, by a co-commercialization agreement with Getinge for North America which allows the Company to sell directly into the North American market and reduce distributor inventory on favourable terms.
The sales team was trained in the new year and has established first contact with accounts of greater than 200 beds that were allocated to TSO(3) in its new arrangement with Getinge. The Company segmented its market based on surgical procedure requiring the greatest concentration of sterilization cycles and therefore would see the greatest immediate benefit to moving to the TSO(3) technology. To date, the Company's new sales and marketing team as identified new direct sales business, including issuing six customer quotes within its first six weeks of sales activity subsequent to the signing of the co-commercialization agreement with Getinge. While these quotations may not turn into final sales, this pipeline is growing and represents new opportunities as they had not previously been targeted by Getinge. The Company has also solidified plans to exhibit at major OR, CSSD, GI and infection control congresses over the next few months and has planned to host educational panels utilizing industry experts and opinion leaders having experience with our technology and its advantages.
In 2018, the Company looks forward to further installations of its industry leading technology, gaining a conclusion on its expanded US claims filings, completing the negotiations which have already been initiated on a new and improved arrangement with Getinge, and maintaining the class leading service levels it has achieved to date with its very satisfied end customers.
Supplemental Non-IFRS Financial Measures
In addition to IFRS financial measures, management uses non-IFRS financial measures to assess the Company's operational performance. It is likely that the non-IFRS financial measures used by the Company will not be comparable to similar measures reported by other issuers or those used by financial analysts as their measures may have different definitions. The measures used by the Company are intended to provide additional information and should not be considered in isolation or as a substitute for IFRS financial performance measures.
Generally, a non-IFRS financial measure is a numerical measure of an entity's historical or future financial performance, financial position or cash flows that is neither calculated nor recognized under IFRS. Management believes that such non-IFRS financial measures are important as they provide users of the financial statements with a better understanding of the results of the Company's recurring operations and their related trends, while increasing transparency and clarity into its operating results. Management also believes these measures can be useful in assessing the Company's capacity to discharge its financial obligations.
Management is assessing its operational performance using supplemental non-IFRS measures which removes significant unusual items that do not reflect the recurring and ongoing operational results and trends.
Additional Fourth Quarter and Full Year 2017 Financial information
$000's 2017 2016
------
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
--- --- --- --- --- --- --- ---
Net income (loss) (1,449) (1,771) (2,254) (1,980) (2,068) (1,473) (1,487) 649
Significant realized
and unrealized
foreign exchange
gains - - - - - - - (1,578)
Financial expenses
(income) 74 48 49 (39) (69) (50) - (10)
Amortization and
depreciation 246 331 221 168 120 147 103 77
Share-based
compensation
expense 301 632 592 609 286 333 268 216
One-time write-off
of inventory - - - - 312 - - -
Income taxes (59) 33 29 27 48 15 (12) 58
------------ --- --- --- --- --- --- --- ---
Adjusted Ebitda (887) (727) (1,363) (1,215) (1,371) (1,028) (1,128) (588)
--------------- ---- ---- ------ ------ ------ ------ ------ ----
The fourth quarter of 2016 was impacted by a one-time write-off of inventory of $0.3 million associated with a commitment to purchase of raw materials made in the year but made obsolete by improvements in installation alternatives in response to feedback from end customers.
The first quarter of 2016 was impacted by a significant foreign exchange gain realized of $1.6 million on the translation of Canadian dollar denominated monetary assets and liabilities following the change in functional currency from Canadian dollars to US dollars.
Adjusted EBITDA, is adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (Adjusted EBITDA). Adjusted EBITDA adjusts net income for (1) significant realized and unrealized foreign exchange gains or losses, (2) financial expenses (income), (3) amortization and depreciation expenses (4) share-based compensation expense, (5) write-downs of certain tangible and intangible assets, (6) one-time write-off of inventory, (7) income taxes, and (8) other significant unusual items.
Summary of Results
Periods ended December 31 (Audited, IFRS Basis, in thousands of US
dollars, except per share amounts)
2017 2016
$ $
--- ---
Revenues 19,726 13,301
Cost of sales 12,068 9,188
------------- ------ -----
Gross profit 7,658 4,113
------------ ----- -----
Expenses
Research and development 6,222 3,512
Selling, general and
administrative 8,728 6,529
Financial expenses (income) 132 (1,658)
-------------------------- --- ------
Total Expenses 15,082 8,383
-------------- ------ -----
Net loss before income
taxes (7,424) (4,270)
Income taxes 30 109
------------ --- ---
Net loss and comprehensive
loss (7,454) (4,379)
-------------------------- ------ ------
Weighted average number of
outstanding shares (in
thousands) 92,508 90,810
-------------------------- ------ ------
Basic and diluted net loss
per share (0.08) (0.05)
-------------------------- ----- -----
Basic and diluted net
comprehensive loss per
share (0.08) (0.05)
----------------------- ----- -----
Fourth Quarter Analysis
(Unaudited, IFRS Basis, USD$ except share figures)
Three-month period ended December 31, 2017, compared to the three-
month period ended December 31, 2016:
Fourth Quarter Fourth Quarter
2017 2016
$ $
--- ---
Revenues 5,780 3,746
Cost of sales 3,455 2,716
------------- ----- -----
Gross profit 2,325 1,030
------------ ----- -----
Expenses
Research and development 1,766 1,297
Selling, general and
administrative 1,993 1,774
Financial expenses (income) 74 (21)
-------------------------- --- ---
Total Expenses 3,833 3,050
-------------- ----- -----
Net loss before income taxes (1,508) (2,020)
Income taxes (59) 48
------------ --- ---
Net loss and comprehensive
loss (1,449) (2,068)
-------------------------- ------ ------
Weighted average number of
outstanding shares (in
thousands) 92,508 90,810
-------------------------- ------ ------
Basic and diluted net loss
per share (0.02) (0.02)
-------------------------- ----- -----
Basic and diluted net
comprehensive loss per
share (0.02) (0.02)
----------------------- ----- -----
Consolidated Statements of Financial Position
As of December 31, 2017, and 2016 (In thousands of US dollars)
2017 2016
$ $
--- ---
Current Assets
Cash and Cash Equivalents 8,044 2,698
Short-term Investments 6,764 15,064
Accounts Receivable 651 2,318
Inventories 2,040 1,703
Prepaid Expenses 150 102
---------------- --- ---
17,649 21,885
Non-current Assets
Long-term Investments - 1,498
Property, Plant and Equipment 3,184 2,357
Intangible Assets 1,886 1,836
----------------- ----- -----
5,070 5,691
----- -----
22,719 27,576
====== ======
Current Liabilities
Accounts Payable and Accrued
Liabilities 2,430 2,272
Warranty Provision 1,263 575
Current Tax Liabilities 68 -
Deferred Revenues 6 1,004
================= === =====
3,767 3,851
Non-current Liabilities
Deferred Tax Liabilities 17 109
Deferred Revenues 6,044 5,945
================= ===== =====
9,828 9,905
===== =====
Equity
Share Capital 111,215 110,406
Reserve - Share-based Compensation 6,574 4,709
Deficit (103,186) (95,732)
Accumulated Other Comprehensive Loss (1,712) (1,712)
==================================== ====== ======
12,891 17,671
====== ======
22,719 27,576
====== ======
Consolidated Statements of Cash Flows
As of December 31, 2017 and 2016 (In thousands of US dollars)
2017 2016
$ $
--- ---
Cash flows from operating activities
Net loss (7,454) (4,379)
Adjustments for:
Depreciation and amortization 966 448
Loss on write-down of property,
plant and equipment 46 -
Income tax liabilities 68 -
Deferred income tax liabilities (92) 109
Share-based compensation 2,134 1,103
Investment income (131) (180)
----------------- ---- ----
(4,463) (2,899)
Changes in non-cash operating
working capital items 1,148 (2,597)
Interest received 185 106
----------------- --- ---
Cash flows used in operating activities (3,130) (5,390)
--------------------------------------- ------ ------
Cash flows from investing activities
Acquisition of investments (6,349) (26,195)
Disposal of investments 16,091 12,164
Acquisition of property, plant and
equipment (1,567) (1,085)
Acquisition of intangible assets (239) (314)
-------------------------------- ---- ----
Cash flows used in investing activities 7,936 (15,430)
--------------------------------------- ----- -------
Cash flows from financing activities
Options exercised 540 719
Warrants exercised - 10,145
------------------ --- ------
Cash flows generated by financing
activities 540 10,864
--------------------------------- --- ------
Increase (decrease) in cash and
cash equivalents 5,346 (9,956)
Cash and cash equivalents at the
beginning 2,698 12,654
--------------------------------- ----- ------
Cash and cash equivalents at the end 8,044 2,698
==================================== ===== =====
Consolidated Statements of Cash Flows
(Unaudited, IFRS Basis, in thousands of US dollars)
Three-month period ended December 31, 2017, compared to the three-
month period ended December 31, 2016
Q4-2017 Q4-2016
$ $
--- ---
Cash flows from operating activities
Net loss (1,449) (2,160)
Adjustments for:
Depreciation and amortization 251 106
Loss on write-down of property,
plant and equipment 6 -
Current and Deferred income tax
liabilities (113) 109
Share-based compensation 301 286
Investment income 8 (49)
----------------- --- ---
(996) (1,601)
Changes in non-cash operating
working capital items 265 537
Interest received 57 11
----------------- --- ---
Cash flows used in operating
activities (674) (1,053)
---------------------------- ---- ------
Cash flows from investing activities
Acquisition of investments (3,440) (3,278)
Disposal of investments 5,077 3,319
Acquisition of property, plant and
equipment (513) (450)
Acquisition of intangible assets (50) (66)
-------------------------------- --- ---
Cash flows used in investing
activities 1,074 (475)
---------------------------- ----- ----
Cash flows from financing activities
Options exercised - 47
----------------- --- ---
Cash flows generated by
financing activities - 47
----------------------- --- ---
Increase (decrease) in cash and
cash equivalents 400 (1,481)
Cash and cash equivalents at the
beginning 7,644 4,179
--------------------------------- ----- -----
Cash and cash equivalents at
the end 8,044 2,698
============================ ===== =====
Conference call
TSO(3) President and CEO R.M. (Ric) Rumble and CFO Glen Kayll, will host the conference call, followed by a question and answer period.
Date: Wednesday, March 21, 2018
Time: 8:30 a.m. Eastern Daylight Time
Toll-free dial-in number: 1-888-231-8191
International dial-in number: 1-514-807-9895 (Montreal); 1-647-427-7450 (Toronto)
Conference ID: 4476389
Analysts and institutional investors are invited to participate on the call. Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gilmartin Group at 1-610-368-6505.
Other interested parties may listen to the live webcast of the conference call at http://event.on24.com/r.htm?e=1620935&s=1&k=55000E6EB791C7A51DDF8935BC80AC6D which will be available for replay in the Investors section of the Company's website at www.tso3.com.
Fourth Quarter and Fiscal 2017 Results Disclosure
The 2017 Annual Report is available on TSO(3)'s website at the following address http://www.tso3.com/en/investors/financial_reporting/annual_reports/ and full 2017 disclosure will shortly be available on SEDAR (www.sedar.com).
About the STERIZONE(®) VP4 Sterilizer
The STERIZONE(®) VP4 Sterilizer is a low-temperature sterilization system that utilizes the dual-sterilants of vaporized hydrogen peroxide (H(2)O(2)) and ozone (O(3)) to achieve terminal sterilization of heat and moisture sensitive medical devices. Its single pre-programmed cycle can sterilize a large number and wide range of compatible devices, creating a cost-effective sterilization process with error free cycle selection. The device's unique Dynamic Sterilant Delivery System(TM) automatically adjusts the quantity of injected sterilant based on the load composition, weight and temperature. This capability removes the guesswork and potential for human error, as there is no need to sort instruments and choose the appropriate cycles as with other machines.
The STERIZONE(®) VP4 Sterilizer is the only terminal sterilization method that is FDA cleared to sterilize multi-channeled flexible endoscopes (with a maximum of four channels) of up to 3.5 meters in length, such as video colonoscopes and gastroscopes - an industry first for any medical device sterilization process.
The STERIZONE(®) VP4 Sterilizer is also the only cleared low temperature sterilizer that can process a mixed load consisting of general instruments, single channel flexible endoscopes, and single or double channel rigid endoscopes in the same cycle with load weights of up to 75 lb. The ability to run mixed loads significantly reduces labor costs by minimizing the amount of instrument sorting required, while maximizing the device turns (more productivity from increased throughput capacity).
More information about the STERIZONE(®) VP4 Sterilizer is available through TSO(3)'s website, under the Products section at http://www.tso3.com/en/products/sterizone-vp4/.
About TSO(3)
Founded in 1998, TSO(3)'s activities encompass the sale, production, maintenance, research, development and licensing of sterilization processes, related consumable supplies and accessories for heat-sensitive medical devices. The Company designs products for sterile processing areas in the hospital environment that offer an advantageous replacement solution to other low temperature sterilization processes currently used in hospitals. TSO(3) also offers services related to the maintenance of sterilization equipment and compatibility testing of medical devices with such processes.
For more information about TSO(3), visit the Company's website at www.tso3.com.
The statements in this release and oral statements made by representatives of TSO(3) relating to matters that are not historical facts are forward-looking statements that involve certain risks, uncertainties and hypotheses, including, but not limited to, the limited history of sales or distribution of the Company, the ability of the Company to obtain the required regulatory clearances to market its products, general business and economic conditions, the condition of the financial markets, the ability of TSO(3) to obtain financing on favourable terms and other risks and uncertainties. Although TSO(3) believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The complete versions of the cautionary note regarding forward-looking statements as well as a description of the relevant assumptions and risk factors likely to affect TSO(3)'s actual or projected results are included in the Management's Discussion and Analysis for the year ended December 31, 2017, which is available on the Company's website. The forward-looking statements contained in this press release are made as of the date hereof, and TSO(3) does not assume any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless expressly required by applicable securities laws.
Company Contacts: R.M. (Ric) Rumble, President and CEO, Tel: 418 651-0003, Email: info@tso3.com; Glen Kayll, CFO, Tel: 418 651-0003, Email: info@tso3.com; Investor Relations: Gilmartin Group, Greg Chodaczek, Tel: 610-368-6505, Email: Greg@gilmartinir.com; Renmark Financial Communications Inc., Barry Mire, Tel: 416 644-2020 or 514 939-3989, Email: bmire@renmarkfinancial.com
SOURCE TSO3 Inc.
