CTX Crescita Therapeutics Inc

– Record Q4, and F2021 Manufacturing Segment Revenue of $5.3M, a 3-fold Increase vs. F2020 – Expansion of Pliaglis® Licenses to 32 New Countries – Strong Liquidity Position of $11.3M – Q4-F2021 Adjusted EBITDA1 of $1.6M

Crescita Therapeutics Inc. (TSX: CTX and OTC US: CRRTF) (“Crescita” or the “Company”), a growth-oriented, innovation-driven Canadian commercial dermatology company, today reported its financial results for the three months and fiscal year ended December 31, 2021 (“Q4-F2021” and “F2021”). All amounts presented are in thousands of Canadian dollars (“CAD”) unless otherwise noted.

Financial Highlights

Q4-F2021 vs. Q4-F2020

• Revenue was $7,562 compared to $2,791, up $4,771;
• Gross profit was $4,651 compared to $1,588, up $3,063;
• Operating expenses were $3,536 compared to $2,316, up $1,220;
• Adjusted EBITDA1 was $1,585 compared to $(446), up $2,031;

F2021 vs. F2020

• Revenue was $16,769 compared to $15,640, up $1,129;
• Gross profit was $10,014 compared to $11,273, down $1,259;
• Operating expenses were $10,733 compared to $9,718, up $1,015;
• Adjusted EBITDA1 was $932 compared to $3,201, down $2,269;
• Ending cash of $11,331 compared to $14,281, down $2,950.

“We made considerable headway in achieving near-term milestones in 2021,” commented Serge Verreault, President and CEO of Crescita. “Our business bounced back from the impacts of COVID-19 in the prior year with 7.2% total revenue growth to $16.8 million. With a strong balance sheet and encouraging consumer trends, we invested in our commercial infrastructure this year. Our aim is to accelerate product sales across all our channels, with a particular emphasis on our digital footprint, and on expanding our presence in the growing medical aesthetics market.

“We also added production volume to our plant, more than tripling our revenue compared to 2020 and our manufacturing team is streamlining our processes to enhance future scalability. We expanded Pliaglis across the globe, adding three partners that will commercialize Pliaglis in 32 new countries. With all major countries now licensed, we are helping our partners obtain regulatory approval to launch Pliaglis in 2022 and beyond so that it becomes a solid recurring revenue stream for Crescita. With 2022 well underway, our team is stronger than ever and well positioned to execute on our growth pillars,” concluded Mr. Verreault.

F2021 Corporate Developments

Expansion of our Board of Directors

• The Board of Directors appointed Mrs. Deborah Shannon-Trudeau as a director effective November 10, 2021. Mrs. Trudeau has over 30 years’ experience in strategy, business development, commercial and manufacturing operations.

Key New Partners for the Commercialization of Pliaglis in 32 Countries

• 8-Country Exclusive Licensing Agreement with Egis Pharmaceuticals PLC, a pharmaceutical company in Central Eastern Europe for the rights to Pliaglis.
• 15-Country Exclusive Licensing Agreement with STADA MENA DWC-LLC, a subsidiary of STADA Arzneimittel AG, a specialty pharma, generics and consumer healthcare group, for the rights to Pliaglis in 15 countries in the Middle East and North Africa (“MENA”) region.
• 9-Country Exclusive Licensing Agreement with Croma Pharma GmbH, a globally acclaimed pharmaceutical company with specializations in medical aesthetics, ophthalmology, and orthopaedics for the rights to Pliaglis in eight European countries and Brazil.

Distribution Agreement with Obagi Cosmeceuticals LLC

• We entered into a distribution agreement with Obagi Cosmeceuticals LLC (“Obagi”) providing us with the exclusive rights to promote, distribute and sell the Obagi Medical® product line in Canada. We expect to launch the Obagi line nationwide through our existing sales network in the first half of 2022.

Acquisition of Minority Interest in The Best You®

• We acquired a minority interest in Akyucorp Ltd. d/b/a The Best You, a privately held network of six medical aesthetic clinics in Ontario (“The Best You”). In consideration, Crescita issued 470,128 common shares at a price of $0.70 per common share and to support The Best You’s growth, we also invested in a secured convertible promissory note with an initial principal amount of $0.5M that could reach $1.25M based on financial performance and certain events and conditions being met.

Launch of NCTF®

• We launched New Cellular Treatment Factor® (“NCTF”), a skin revitalization solution primarily used for the improvement of skin quality and fine lines. NCTF represents a key opportunity for us to take advantage of the increasing popularity of minimally invasive and non-invasive aesthetic procedures and to strengthen our presence in the rapidly growing Canadian medical aesthetics market.

Expansion of Production Volumes

• We received firm purchase orders of approximately $7 million in our Manufacturing and Services segment, representing a significant increase in production and sales volume. The increase is a result of our customers’ anticipated launches into new key markets and may not be representative of future orders.

Amendment to Credit Facility

• We amended our existing revolving demand operating credit facility for a temporary $2.5 million increase in the available amount from $3.5 million to $6.0 million until April 30, 2022. The temporary increase provides us with additional financial flexibility to fund increases in production volumes in the Manufacturing and Services segment. The Company has not drawn down any amounts from this facility.

Q4-F2021 and F2021 Financial Results

Note: The Management’s Discussion and Analysis (“MD&A”), the consolidated audited Financial Statements and accompanying notes for the fiscal year ended December 31, 2021 are available at www.crescitatherapeutics.com/investors and have been filed with SEDAR at www.sedar.com.

Summary Financial Results

In thousands of CAD, except per share data and number of shares

 

Three months ended December 31,

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

$

 

$

 

$

 

$

Commercial Skincare

 

 

2,270

 

 

2,079

 

 

7,469

 

 

6,704

Licensing and Royalties

 

 

2,367

 

 

359

 

 

3,967

 

 

7,224

Manufacturing and Services

 

 

2,925

 

 

353

 

 

5,333

 

 

1,712

Revenues

 

 

7,562

 

 

2,791

 

 

16,769

 

 

15,640

Cost of goods sold

 

 

2,911

 

 

1,203

 

 

6,755

 

 

4,367

Gross profit

 

 

4,651

 

 

1,588

 

 

10,014

 

 

11,273

Gross margin (%)

 

 

61.5%

 

 

56.9%

 

 

59.7%

 

 

72.1%

Research and development

 

 

171

 

 

325

 

 

634

 

 

1,101

Selling, general and administrative

 

 

3,018

 

 

1,743

 

 

8,720

 

 

7,126

Depreciation and amortization

 

 

347

 

 

248

 

 

1,379

 

 

1,491

Total operating expenses

 

 

3,536

 

 

2,316

 

 

10,733

 

 

9,718

Operating profit (loss)

 

 

1,115

 

 

(728)

 

 

(719)

 

 

1,555

Total other (income) expenses

 

 

84

 

 

(40)

 

 

298

 

 

1,035

Share of profit in associate

 

 

8

 

 

-

 

 

8

 

 

-

Income (loss) before income taxes

 

 

1,039

 

 

(688)

 

 

(1,009)

 

 

520

Deferred income tax (recovery) expense

 

 

96

 

 

(96)

 

 

96

 

 

483

Net income (loss)

 

 

943

 

 

(592)

 

 

(1,105)

 

 

37

Adjusted EBITDA1

 

 

1,585

 

 

(446)

 

 

932

 

 

3,201

Earnings per share

 

Basic

 

$

0.04

 

$

(0.03)

 

$

(0.05)

 

$

-

Diluted

$

0.04

$

(0.03)

$

(0.05)

$

-

Weighted average number of common shares outstanding

 

Basic

 

 

21,016,282

 

 

20,648,448

 

 

20,755,290

 

 

20,661,477

Diluted

 

22,295,112

 

20,648,448

 

20,755,290

 

20,969,205

Selected Balance Sheet Information

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

 

 

 

 

 

11,331

 

 

14,281

Selected Cash Flow Information

 

 

 

 

 

 

 

 

Cash provided by (used in) operating activities

 

 

(469)

 

 

568

 

 

(1,597)

 

 

5,608

Cash used in investing activities

 

 

(222)

 

 

-

 

 

(846)

 

 

(59)

Cash used in financing activities

 

 

(194)

 

 

(94)

 

 

(500)

 

 

(476)

Revenue We have three reportable segments: 1) Commercial Skincare (“Commercial”), which manufactures and sells branded non-prescription skincare products in both the Canadian and international markets, and also commercializes Pliaglis and NCTF in Canada; 2) Licensing and Royalties (“Licensing”), which primarily generates revenue from licensing our intellectual property related to Pliaglis or our transdermal delivery technologies; and 3) Manufacturing and Services (“Manufacturing”), which generates revenue from contract manufacturing and product development services.

For the three months ended December 31, 2021, total revenue was $7,562 compared to $2,791 for the three months ended December 31, 2020, representing an increase of $4,771. Our Licensing segment revenue increased by $2,008 reflecting the recognition of minimum guaranteed royalties of $1,279 (US$1,000) under our agreement with Taro Pharmaceuticals Inc. (“Taro” and the “Taro Agreement”) and an upfront payment of $932 (€650) in connection with the licensing agreement with Egis, while our Manufacturing segment revenue increased by $2,572, reflecting the additional purchase orders from new and existing clients, combined with the recovery from the impact of COVID-19 on our Manufacturing segment in the prior year. Our Commercial Skincare segment posted an increase of $191, driven by incremental sales of NCTF launched in 2021 and an increase in domestic sales from our lead aesthetic brand, Laboratoire Dr Renaud®, partly offset by lower export revenue in Asian markets.

For the year ended December 31, 2021, total revenue was $16,769 compared to $15,640 for the year ended December 31, 2020, representing an increase of $1,129. The most significant increases came from our Manufacturing segment in the amount of $3,621, reflecting purchase orders from new and existing clients, and from our Commercial segment in the amount of $765, reflecting higher product sales mainly driven by digital marketing investments and the launch of NCTF, with both segments showing recovery from the prior year’s COVID-19 impact. These increases were partly offset by the $3,257 decrease in our Licensing segment, mainly as a result of the one-time revenue recognized in the prior year from amending our U.S. licensing agreement with Taro (the “Taro Amendment”) in the amount of $4,483, offset in part by the minimum royalties under the Taro Agreement and upfront payments under various Pliaglis licensing agreements in the rest-of-world. No royalties were recognized from the U.S. sales of Pliaglis during the year.

Gross Profit For the three months ended December 31, 2021, gross profit was $4,651, representing a gross margin of 61.5%, compared to $1,588 and 56.9%, respectively, for the three months ended December 31, 2020. The increase of $3,063 in gross profit and 4.6% in gross margin were both mainly due to the increase in high-margin licensing revenue year-over-year as well as, to a lesser extent, the benefit of higher manufacturing volumes.

For the year ended December 31, 2021, gross profit was $10,014, representing a gross margin of 59.7%, compared to $11,273 and 72.1%, respectively, for the year ended December 31, 2020. The decrease in gross profit of $1,259 was mainly due to the drop in high-margin licensing revenue year-over-year, partly offset by the growth in our Commercial and Manufacturing segments and the benefit of government wage and rent subsidies related to COVID-19. The decrease in gross margin of 12.4% was mainly driven by the decrease in high-margin licensing revenue and the unfavourable revenue mix with higher Manufacturing segment revenue year-over-year, offset in part by the benefit of higher manufacturing volumes.

Operating Expenses For the three months ended December 31, 2021, total operating expenses were $3,536 compared to $2,316 for the three months ended December 31, 2020, representing a net increase of $1,220. The increase was primarily driven by higher selling, general and administrative (“SG&A”) expenses, mainly reflecting investments in advertising and promotion to grow our brands and in various key positions across the organization, and to a lesser extent, higher depreciation and amortization expense of $99. These additional costs were partly offset by lower research and development (“R&D”) spend of $154.

For the year ended December 31, 2021, total operating expenses were $10,733 compared to $9,718 for the year ended December 31, 2020, representing a net increase of $1,015. The increase was mainly reflective of a return to a pre-pandemic level of headcount-related costs, investments in advertising and promotion spend to grow our brands and in various key positions across the organization, mainly in the sales, marketing and digital marketing departments. These additional costs were partly offset by lower R&D spend of $467, primarily reflecting the Company’s proportionate funding of clinical development activities related to CTX-101 in Q2-F2020, and to a lesser extent, lower depreciation expense of $112.

During the year ended December 31, 2021, we recognized the benefit of $777 in wage subsidies under the Canada Emergency Wage Subsidy (“CEWS”) program, compared to $722 for the year ended December 31, 2020. In Q2-F2020, we initiated cash conservation measures including temporary layoffs and salary reductions in response to the pandemic.

Cash and Cash Equivalents Cash and cash equivalents were $11,331 at December 31 2021, reflecting a net year-over-year change of $(2,950), mainly due to the cash used in operations, which includes the impact of non-cash working capital items that will be collected in the first half of fiscal 2022, the investment in a secured convertible promissory note in connection with our minority interest in The Best You, purchases of capital assets and repurchase of shares under our Normal Course Issuer Bid.

Non-IFRS Financial Measures We report our financial results in accordance with International Financial Reporting Standards (“IFRS”). However, we use certain non-IFRS financial measures to assess our Company’s performance. We believe these to be useful to management, investors, and other financial stakeholders in assessing Crescita’s performance. The non-IFRS measures used in this press release do not have any standardized meaning prescribed by IFRS and are therefore not comparable to similar measures presented by other issuers. These measures should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with IFRS. The following are the Company’s non-IFRS measures along with their respective definitions:

1. EBITDA is defined as earnings before interest, income taxes, depreciation, and amortization.
2. Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, share of (profit) losses of associates, other (income) expenses, share-based compensation costs, goodwill and intangible asset impairment, and foreign exchange (gains) losses, as applicable.

Management believes that Adjusted EBITDA is an important measure of operating performance and cash flow and provides useful information to investors as it highlights trends in the underlying business that may not otherwise be apparent when relying solely on IFRS measures. Below is a reconciliation of EBITDA and Adjusted EBITDA to their closest IFRS measures.

In thousands of CAD dollars

 

Three months ended December 31,

 

Year ended December 31,

 

2021

 

2020

 

2021

 

2020

 

$

 

$

 

$

 

$

Net income (loss)

 

943

 

(592)

 

(1,105)

 

37

Adjust for:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

347

 

248

 

1,379

 

1,491

Interest (income) expense, net

 

14

 

(29)

 

54

 

(39)

Deferred income tax (recovery) expense

 

96

 

(96)

 

96

 

483

EBITDA

 

1,400

 

(469)

 

424

 

1,972

Adjust for:

 

 

 

 

 

 

 

 

Share of profit in an associate

 

(8)

 

-

 

(8)

 

-

Share-based compensation

 

123

 

34

 

272

 

155

Foreign exchange (gain) loss

 

70

 

(11)

 

244

 

(176)

Impairment of intangible assets

 

-

 

-

 

-

 

1,918

Taro Amendment

 

-

 

-

 

-

 

(668)

Adjusted EBITDA

 

1,585

 

(446)

 

932

 

3,201

Caution Concerning Limitations of Summary Financial Results Press Release This summary earnings press release contains limited information meant to assist the reader in assessing Crescita’s performance, but it is not a suitable source of information for readers who are unfamiliar with Crescita and is not in any way a substitute for the Company's Consolidated Audited Financial Statements and notes thereto, MD&A and our latest Annual Information Form (“AIF”).

About Crescita Therapeutics Inc. Crescita (TSX: CTX and OTC US: CRRTF) is a growth-oriented, innovation-driven Canadian commercial dermatology company with in-house R&D and manufacturing capabilities. The Company offers a portfolio of high-quality, science-based non-prescription skincare products and early to commercial stage prescription products. We also own multiple proprietary transdermal delivery platforms that support the development of patented formulations to facilitate the delivery of active ingredients into or through the skin. For more information visit, www.crescitatherapeutics.com.

Forward-looking Statements This press release contains “forward-looking information” within the meaning of applicable securities laws (collectively, “forward-looking statements”). Forward-looking statements can be identified by words such as: “anticipate”, “intend”, “plan”, “goal”, “seek”, “believe”, “project”, “estimate”, “expect”, “strategy”, “future”, “likely”, “may”, “should”, “will” and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the Company’s objectives, plans, goals, strategies, growth, performance, operating results, strategy for customer retention, product development, market position, business prospects, opportunities and industry trends and similar statements concerning anticipated future events, results, circumstances, performance or expectations. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on current beliefs, expectations and assumptions regarding the future of the Company’s business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company’s control. Crescita’s actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not unduly rely on any of these forward-looking statements. Important factors that could cause Crescita’s actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others: economic and market conditions, the impact of the COVID-19 pandemic and the response thereto of governments and consumers, the Company’s ability to execute its growth strategies, reliance on third parties for clinical trials, marketing, distribution and commercialization, the impact of changing conditions in the regulatory environment and product development processes, manufacturing and supply risks, increasing competition in the industries in which the Company operates, the Company’s ability to meet its debt commitments, the impact of unexpected product liability matters, the impact of litigation involving the Company and/or its products, the impact of changes in relationships with customers and suppliers, the degree of intellectual property protection of the Company’s products, the degree of market acceptance of the Company’s products, developments and changes in applicable laws and regulations, as well as other risk factors discussed in the “Risk Factors” sections of the Company’s most recent annual MD&A for the year ended December 31, 2021 and the Company’s AIF dated March 22, 2022. Any forward-looking statement made in this press release is based only on information currently available and speaks only as of the date on which it is made. Except as required by applicable securities laws, Crescita undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

______________________ 1Please refer to the Non-IFRS Financial Measures section of this press release.

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Crescita Therapeutics Investor Relations Linda Kisa, CPA, CA lkisa@crescitatx.com