TSO3 Reports Third Quarter 2018 Results
QUEBEC CITY and MYRTLE BEACH, SC, Nov. 6, 2018 /PRNewswire/ - TSO3 Inc. (TSX: TOS) ("TSO(3)" or the "Company"), an innovator in sterilization technology for medical devices in healthcare settings, reported financial results for the third fiscal quarter ended September 30, 2018.
Business Highlights
In the third quarter of 2018, TSO(3) shipped four STERIZONE(®) VP4 Sterilizers to end users. As of November 6, 2018, a cumulative 68 STERIZONE(®) VP4 Sterilizers have been shipped to end users (59 installed, nine to be installed). In addition, the Company has a further 22 units of backlog for future shipments through customer purchase orders or commitments, ten of which were received subsequent to the end of the quarter and were directly related to TSO(3) only activity. The Company now has a total of 90 sterilizers either installed, to be installed or committed to be shipped.
On August 1, 2018, TSO(3) announced that it and a fund of which Courage Capital Management LLC, ("Courage") is the investment advisor, entered into a binding US$20 million debt financing to fund commercialization initiatives for its STERIZONE(®) VP4 Sterilizer. Courage is a Nashville, TN headquartered alternative asset management firm with a 20-year track record of investments in health care services, medical devices, and pharmaceuticals.
Concurrent with the Courage financing, TSO(3) and Getinge mutually decided not to renew the distribution agreements that had existed between the parties and agreed to provide TSO(3) unrestricted independent commercialization of its STERIZONE(®) VP4 Sterilizers, enable the Company's purchase of STERIZONE(®) VP4 Sterilizers from Getinge and transition the existing sales pipeline along with the service, maintenance and consumables sales of all existing STERIZONE(®) VP4 Sterilizer customers in the United States and Canada to TSO(3).
"TSO(3) has established a goal to ship or receive commitments for 200 STERIZONE(®) VP4 Sterilizers by the end of 2019", stated R.M. (Ric) Rumble, President and CEO of TSO(3). "We have now purchased the inventory we need at favourable pricing, raised capital and hired and trained a team of experienced sales and service personnel in support of this goal."
2018 Third Quarter Financial Summary
-- Revenues equaled $0.8 million, as compared to $0.4 million in the second
quarter of 2018 and $5.1 million in the third quarter of 2017. TSO(3)
revenues in the third quarter of 2018 reflect sales of sterilizers,
consumables, accessories and service parts. The Company shipped four
sterilizers to hospitals in the third quarter of 2018 as opposed to 44
sterilizers to its former distributor in the same period last year.
-- Gross profit was $1.2 million, as compared to $0.1 million in the second
quarter of 2018 and $2.0 million in the third quarter of 2017. The
Company generated gross profit from sales of sterilizers, consumables,
accessories and service parts. Gross profit includes a $0.8 million
reversal of the warranty provision associated with inventory purchased
from the Company's former distributor.
-- Financial income was $0.6 million, as compared to immaterial amounts in
both the second quarter of 2018 and third quarter of 2017. The Company
recorded $0.5 million of accrued interest expense related to a $20.0
million debt financing it obtained on August 1, 2018 and a non-cash gain
of $1.1 million on the revaluation of the embedded derivative within the
Convertible Note associated with this financing.
-- The Company's net loss was $(2.1) million or $(0.02) per share in the
third quarter of 2018, as compared to $(4.0) million, or $(0.04) per
share, in the second quarter of 2018 and to $(1.8) million or $(0.02)
per share in the year-ago quarter.
-- The Company had $16.1 million in cash, cash equivalents and investments
as of September 30, 2018, as compared to $14.8 million at the end of
2017. In the third quarter of 2018, the Company raised $20 million in
debt financing ($19.7 million net of expenses) and used $1.7 million for
operations excluding changes in non-cash working capital, and $8.7
million for changes in non-cash working capital, which includes $7.9
million used for the repurchase of 230 STERIZONE(®) VP4 Sterilizers and
associated accessories from its former distribution partner.
-- Inventories were $4.0 million as of September 30, 2018, as compared to
$2.0 million at the end of 2017. During the third quarter of 2018, the
Company bought 230 sterilizers and associated accessories for $7.9
million from its former distributor and applied an unamortized $6.0
million balance of deferred license fees associated with its former
distribution agreement to these repurchased units. In addition, the
Company also applied the repurchase provision of $0.5 million it
recorded in the second quarter of 2018 in relation to the upgrades of 47
STERIZONE(®) VP4 sterilizers against finished goods.
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 remove significant unusual items that do not reflect the recurring and ongoing operating results and trends.
Additional Third Quarter 2018 Financial information
2018 2017
$000's
---
Q3
Q2
Q1
Q4
Q3
Q2
Q1
---
Net loss (2,104) (3,952) (4,512) (1,449) (1,771) (2,254) (1,980)
Financial expenses
(income) (599) (12) (14) 74 48 49 (39)
Amortization and
depreciation 270 292 315 246 331 221 168
Share-based
compensation
expense 688 627 371 301 632 592 609
Income taxes 11 7 (59) 33 29 27
---
Adjusted Ebitda (1,734) (3,038) (3,840) (887) (727) (1,363) (1,215)
---
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 September 30, 2018 and 2017 (Unaudited, IFRS Basis, in thousands of US dollars, except per share
amounts)
Third Quarter Nine months
2018 2017 2018 2017
$
$
$
$
Revenues 782 5,105 1,410 13,946
Cost of sales (394) 3,102 451 8,613
---
1,176 2,003 959 5,333
Expenses
Research and development 1,260 1,562 4,452 4,456
Selling, general and
administrative 2,608 2,131 7,681 6,735
Financial (income)
expenses (599) 48 (624) 58
---
Total Expenses 3,269 3,741 11,509 11,249
---
Net loss before income
taxes (2,093) (1,738) (10,550) (5,916)
Income taxes 11 33 18 89
---
Net loss and
comprehensive loss (2,104) (1,771) (10,568) (6,005)
---
Weighted average number
of outstanding shares
(in thousands) 93,208 92,842 93,009 92,258
---
Basic and diluted net
loss per share (0.02) (0.02) (0.11) (0.07)
---
Basic and diluted net
comprehensive loss per
share (0.02) (0.02) (0.11) (0.07)
---
Interim Consolidated Statements of Financial Position
(Unaudited, in thousands of US dollars)
September 30,
December 31,
2018 2017
$
$
Current Assets
Cash and Cash Equivalents 16,082 8,044
Short-term Investments 6,764
Accounts Receivable 855 651
Inventories 3,976 2,040
Prepaid Expenses 238 150
---
21,151 17,649
Non-current Assets
Property, Plant and Equipment 2,592 3,184
Intangible Assets 1,839 1,886
---
4,431 5,070
25,582 22,719
Current Liabilities
Accounts Payable and Accrued
Liabilities 2,055 2,430
Warranty Provision 251 1,263
Current Tax Liabilities 11 68
Deferred Revenues 16 6
---
2,333 3,767
Non-current Liabilities
Deferred Tax Liabilities 17 17
Debt 17,364
Embedded Derivative 1,693
Deferred Revenues 6,044
---
21,407 9,828
Equity
Share Capital 111,471 111,215
Reserve - Share-based
Compensation 8,170 6,574
Deficit (113,754) (103,186)
Accumulated Other Comprehensive
Loss (1,712) (1,712)
---
4,175 12,891
25,582 22,719
Interim Consolidated Statements of Cash Flows
As of September 30, 2018, and 2017 (Unaudited, in
thousands of US dollars)
Nine months
2018 2017
$
$
Cash flows
from
operating
activities
Net loss (10,568) (6,005)
Adjustments
for:
Depreciation
and
amortization 877 715
Loss on
write-
down of
property,
plant and
equipment 66 39
Deferred
income tax
liabilities 89
Share-
based
compensation 1,686 1,833
Capitalized
interest on
long term
debt 445
Embedded
derivative
(gain)
recognized
in net
loss (1,103)
Investment
income (69) (138)
---
(8,666) (3,467)
Changes in
non-cash
operating
working
capital
items (9,772) 883
Interest
received 106 127
---
Cash flows
used in by
operating
activities (18,332) (2,457)
---
Cash flows
from
investing
activities
Acquisition
of
investments (2,909)
Disposal of
investments 6,726 11,015
Acquisition
of
property,
plant and
equipment (136) (1,057)
Acquisition
of
intangible
assets (102) (190)
Proceed
from
disposal
of
property,
plant and
equipment 2
---
Cash flows
generated
by
investing
activities 6,488 6,861
---
Cash flows
from
financing
activities
Issuance of
debt net
of
financing
fees 19,666
Financing
fee
recognized
in net
loss 50
Options
exercised 166 540
---
Cash flows
generated
by
financing
activities 19,882 540
---
Increase in
cash and
cash
equivalents 8,038 4,944
Cash and
cash
equivalents
at the
beginning 8,044 2,698
---
Cash and
cash
equivalents
at the end 16,082 7,642
---
Results Conference Call
Date: Wednesday, November 7, 2018
Time: 8:30 a.m. EST
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: 4598474
Analysts and investors are invited to participate to 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 to 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 https://event.on24.com/wcc/r/1863190/0A8CDB0936AF81795D977C263FE1FCCC which will be available for replay in the Investors section of the Company's website at www.tso3.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, duodenoscopes 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.
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.
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SOURCE TSO3 Inc.
