Net Revenues Increased 29% to $17.9 Million
Net Income Increased 118% to $5.1 Million, or
$0.22 Per Share
(Quarterly Non-GAAP Net Income Increased 135% to
$5.6 Million, or $0.24 Per Share)
Enzymotec Ltd. (Nasdaq:ENZY), a developer, manufacturer and
marketer of innovative bio-active lipid ingredients, today reported
financial results for the first quarter ended March 31, 2014.
First Quarter 2014 Financial Highlights, Compared to the
Same Period Last Year
- First quarter net revenues (equity method) increased 29.1% to
$17.9 million
- First quarter net revenues (proportionate consolidation method)
increased 43.5% to $23.7 million
- First quarter gross margin (equity method) increased over 1,400
basis points to 61.6%
- First quarter net income increased 118.0% to $5.1 million.
First quarter net income includes approximately $0.4 million of
secondary offering related expenses and also includes license
amortization expenses related to the settlement and license
agreement signed with Neptune
- First quarter non-GAAP net income increased 135.3% to $5.6
million*
- First quarter adjusted EBITDA increased 119.3% to $6.5 million*
- Record quarterly operating cash flow of $4.8 million
* A reconciliation of Non-GAAP financial measures to GAAP
Financial measures is set forth below.
Recent Business Highlights:
- Signed a final settlement and license agreement with Neptune
Technologies & Bioressources Inc. and Acasti Pharma
Inc. As a result, the related U.S. federal court actions
against the Company have been dismissed and the International Trade
Commission's investigation will be terminated. The Company received
a worldwide non-exclusive license to the entire 8,030,348 patent
family for as long as any patent in that family exists, for all of
the Company's relevant current products and future anticipated
products under development.
- Repaid long-term loan in full, and following that, the Company
is no longer subject to any financial or other covenants. All bank
pledges on the Company's assets have been removed.
"Our team continues to execute on our strategic growth
initiatives and leverage our core strengths, including infant
nutrition and health and wellness, to generate solid first quarter
growth in net revenues, strong margin expansion and robust
earnings," stated Dr. Ariel Katz, Enzymotec's President and Chief
Executive Officer. "While we are pleased with our start to fiscal
2014, we expect to face a challenging second quarter and, as a
result, are reducing our outlook for the year. We believe these
headwinds will mainly impact us in the second quarter and remain
optimistic in our outlook for second half of the year due to
improved supply/demand dynamics across our business segments."
Dr. Katz concluded, "Notwithstanding our outlook for the second
quarter, I believe Enzymotec is well positioned for future growth
in revenues and profit as we continue to expand our customer base
across our Nutrition and Vaya Pharma segments and further leverage
our global infrastructure in order to capitalize on the growth
opportunities in front of us."
First Quarter 2014 Results
Based on the proportionate consolidation method, net revenues
for the first quarter of 2014 increased 43.5% to $23.7 million from
$16.5 million for the first quarter of 2013.
Based on the equity method of accounting, net revenues for the
first quarter of 2014 increased 29.1% to $17.9 million from $13.8
million for the first quarter of 2013.
Gross margin (equity method) for the first quarter of 2014
increased over 1400 basis points to 61.6% from 47.3% for the first
quarter of 2013, primarily due to an increase in the volume of
sales with higher margin products, as well as improvements in
production efficiency, the operation of the new extraction facility
and the leveraging of fixed production costs.
Selling and marketing expenses increased to $2.3 million from
$1.6 million in the first quarter of 2013, and from $1.8 million in
the fourth quarter of 2013, primarily due to the license
amortization expenses related to the settlement and license
agreement signed with Neptune and as a result of building the sales
force of VAYA USA in order to expand sales to additional
states.
General and administrative expenses increased to $2.2 million
from $1.1 million in the first quarter of 2013, primarily due to
expenses related to the secondary offering in February 2014 and due
to patent-related legal expenses.
Net income for the first quarter of 2014 increased 118.0% to
$5.1 million, or $0.22 per diluted share, based on a weighted
average of 23.3 million shares from $2.3 million, or $0.12 per
diluted share, based on a weighted average of 3.8 million shares
for the first quarter last year.
Non-GAAP net income for the first quarter of 2014 increased
135.3% to $5.6 million, or $0.24 per diluted share from $2.4
million, or $0.12 per diluted share for the first quarter last
year.
Adjusted EBITDA for the first quarter of 2014 increased 119.3%
to $6.5 million from adjusted EBITDA of $3.0 million for the first
quarter of 2013. A reconciliation of adjusted EBITDA to GAAP net
income is set forth below.
Below is segment information for the three months ended March
31, 2014 and 2013:
|
Three Months
Ended March 31, 2014 |
|
Nutrition
Segment |
VAYA Pharma
Segment |
Total Segment
Results of Operations |
Elimination(1) |
Consolidated
Results of Operations |
|
(in
thousands) |
Net revenues |
$ 22,417 |
$ 1,305 |
$ 23,722 |
$ (5,871) |
$ 17,851 |
Cost of revenues(2) |
12,193 |
367 |
12,560 |
(5,703) |
6,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2014 |
|
Nutrition
Segment |
VAYA Pharma
Segment |
Total Segment
Results of Operations |
Elimination(1) |
Consolidated
Results of Operations |
|
(in
thousands) |
Gross profit(2) |
10,224 |
938 |
11,162 |
(168) |
10,994 |
Operating expenses(3) |
3,663 |
1,769 |
5,432 |
— |
5,432 |
Depreciation and amortization |
684 |
59 |
743 |
|
|
Adjusted EBITDA(4) |
$ 7,245 |
$ (772) |
$ 6,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2013 |
|
Nutrition
Segment |
VAYA Pharma
Segment |
Total Segment
Results of Operations |
Elimination(1) |
Consolidated
Results of Operations |
|
(in
thousands) |
Net revenues |
$ 15,642 |
$ 884 |
$ 16,526 |
$ (2,696) |
$ 13,830 |
Cost of revenues(2) |
9,639 |
236 |
9,875 |
(2,596) |
7,279 |
Gross profit(2) |
6,003 |
648 |
6,651 |
(100) |
6,551 |
Operating expenses(3) |
2,582 |
1,494 |
4,076 |
— |
4,076 |
Depreciation and amortization |
336 |
40 |
376 |
|
|
Adjusted EBITDA(4) |
$ 3,757 |
$ (806) |
$ 2,951 |
|
|
____________________
(1) Represents the change from proportionate consolidation
to the equity method of accounting. (2) Includes depreciation
and amortization, but excludes share-based compensation expense.
(3) Includes depreciation and amortization, but excludes
share-based compensation expense and secondary offering related
expenses. (4) Adjusted EBITDA is a non-GAAP financial
measure. For a definition and a reconciliation of adjusted
EBITDA to our net income, see "Non-GAAP Financial Measures"
below.
Joint Venture Accounting
Under U.S. GAAP, the Company is required to account for the
results of operation of Advanced Lipids AB (AL), the Company's
50%-owned joint venture, using the equity method, meaning that the
Company recognizes its share in the net results of AL as a share of
profits of an equity investee. Accordingly, the revenues recognized
from the arrangement are the amounts the Company charges to its
joint venture partner, or the Company's direct costs of production
plus its share of the joint venture's profits. For the three-month
periods ended March 31, 2014 and 2013, sales of the Company through
this joint collaboration amounted to $5.6 million and $3.4 million,
respectively.
To provide investors with a better understanding of the
Company's performance and for purposes of segment reporting under
U.S. GAAP, which requires presentation on the same basis provided
to and utilized by management to analyze the relevant segment's
results of operations, the Company accounts for the results of
operations of AL using the proportionate consolidation method. The
financial information included in the tables above under the
heading "Nutrition segment" includes, inter alia, the results of
operations of AL, using the proportionate consolidation method.
Under the proportionate consolidation method, the Company
recognizes its proportionate share of the gross revenues of AL and
records its proportionate share of the joint venture's costs of
production in its statement of operations.
Balance Sheet and Liquidity Data
As of March 31, 2014, Enzymotec had $74.4 million in cash and
cash equivalents, $19.8 million in other working capital items and
no debt. On January 31, 2014, the Company repaid its long-term loan
in full, and following that, the Company is no longer subject to
any financial or other covenants. As a result, the bank has removed
all pledges on the Company's assets.
The Company generated a record $4.8 million in cash from
operating activities during the first quarter of 2014.
Outlook for 2014
For the full fiscal year 2014 the Company updates its guidance
as follows:
- Net revenues, based on the equity method of accounting, of $68
million to $85 million, an increase of 5% to 31% over fiscal year
2013
- Net revenues, based on the proportionate consolidation method,
of $90 million to $110 million, an increase of 12% to 36% over
fiscal year 2013
- Non-GAAP net income of $15 million to $22 million, an increase
of 9% to 60% over fiscal year 2013
- Non-GAAP diluted EPS of $0.64 to $0.94
The Company expects second quarter net revenues and earnings to
be equal to or lower than the second quarter of 2013. As the
Company previously disclosed, in the second quarter it plans to
install new equipment to increase its manufacturing capacity, which
will require a temporary shutdown of the plant. Additionally,
recent changes in Chinese regulations require infant formula
manufacturers to make certain changes to their production chain.
As a result, changes may be required to supply arrangements
in response to customer requests. The Company does not expect this
change in Chinese regulations to impact its 2014 revenues, but it
does expect that this will result in revenues being shifted from
the second quarter to the second half of the year. Finally, recent
weakness in the Omega-3 market had a negative impact, combined with
weather conditions in the U.S. at the beginning of 2014, which
resulted in delayed renewal orders from krill oil customers in the
U.S., and additional market factors negatively impacted the
Australian krill oil market. This is expected to be partially
offset by increased demand from emerging territories, such as
Europe and the Far East, in the second half of 2014.
Non-GAAP net income represents net income excluding (i)
share-based compensation expense and (ii) other unusual income or
expenses. Non-GAAP diluted EPS is diluted EPS based on Non-GAAP net
income.
Conference Call Details
Enzymotec will host a conference call today at 8:30 a.m. eastern
time to discuss its first quarter of 2014 financial results.
Listeners in North America may dial +1-877-359-9508 and
international listeners may dial +1-224-357-2393 along with
confirmation code 31406358 to access the live call. A telephonic
playback will be available after the call through Wednesday, May
28, 2014. Participants in North America may dial 855-859-2056 and
international participants may dial +1-404-537-3406 along with the
confirmation code 31406358 to hear the playback.
The call will also be broadcast live over the Internet, hosted
at the Investors section of Enzymotec's website at
http://ir.enzymotec.com, and will be archived online within one
hour of its completion through Wednesday, May 28, 2014.
Forward Looking Statements
This release may contain forward-looking statements, which
express the current beliefs and expectations of Company management.
Such statements involve a number of known and unknown risks and
uncertainties that could cause our future results, performance or
achievements to differ significantly from the results, performance
or achievements expressed or implied by such forward-looking
statements. Important factors that could cause or contribute to
such differences the following risks: we depend on third
parties to obtain raw materials, in particular krill, necessary for
the production of our products; a high proportion of the sales of
our InFat product is sold to end users by a single company in
China; we are subject to a degree of customer concentration and our
customers do not enter into long-term purchase commitments with us;
we may be required to pay royalties on sales of our krill products
in North America and Australia; we have in the past, and may in the
future, become subject to litigation regarding intellectual
property rights or other matters; our offering of products as
''medical foods'' in the United States may be challenged by
regulatory authorities; we rely on our Swedish joint venture
partner to manufacture InFat, and certain matters related to the
joint venture are the subject of disagreement; we are dependent on
a single facility that houses the majority of our operations; we
may be impacted by delays in manufacturing as we expand our
capacity; we may not be able to expand our production or processing
capabilities or satisfy growing demand; our gross profits may be
adversely affected if we are only able to obtain lower quality
krill meal; our ability to obtain krill may be affected by
conservation regulation or initiatives; our product development
cycle is lengthy and uncertain, and our development or
commercialization efforts for our products may be unsuccessful; we
are subject to significant and increasing government regulations
regarding the sale and marketing of our products; we may not be
able to protect our proprietary technology or prevent its
unauthorized use by third parties; ; and other factors discussed
under the heading "Risk Factors" in the Company's Form 20-F filed
with the Securities and Exchange Commission on February 13, 2014.
Forward-looking statements in this release are made pursuant to the
safe harbor provisions contained in the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are
made only as of the date hereof, and the Company undertakes no
obligation to update or revise the forward-looking statements,
whether as a result of new information, future events or
otherwise.
About Enzymotec Ltd.
Enzymotec is a leading global supplier of specialty lipid-based
products and solutions. The Company develops, manufactures and
markets innovative bio-active lipid ingredients, as well as final
products, based on sophisticated processes and
technologies.
Non-GAAP Financial Measures
Adjusted EBITDA and non-GAAP net income are metrics used by
management to measure operating performance. Adjusted EBITDA
represents net income excluding (a) financial expenses, net, (b)
taxes on income, (c) depreciation and amortization, (d) share-based
compensation expense and (e) other unusual income or expenses, and
after giving effect to the change from the equity method of
accounting for our joint venture to the proportionate consolidation
method. Non-GAAP net income represents net income excluding
(i) share-based compensation expense and (ii) other unusual income
or expenses.
The Company presents adjusted EBITDA as a supplemental
performance measure because it believes it facilitates operating
performance comparisons from period to period and company to
company by backing out potential differences caused by variations
in capital structures (affecting interest expenses, net), changes
in foreign exchange rates that impact financial asset and
liabilities denominated in currencies other than our functional
currency (affecting financial expenses, net), tax positions (such
as the impact on periods or companies of changes in effective tax
rates) and the age and book depreciation of fixed assets (affecting
relative depreciation expense). In addition, both adjusted
EBITDA and non-GAAP net income exclude the non-cash impact of
share-based compensation and a number of unusual items that the
Company does not believe reflect the underlying performance of our
business. Because adjusted EBITDA and Non-GAAP net income
facilitate internal comparisons of operating performance on a more
consistent basis, the Company also uses adjusted EBITDA and
non-GAAP net income in measuring our performance relative to that
of our competitors. Adjusted EBITDA and non-GAAP net income
are not measures of our financial performance under GAAP and should
not be considered as alternatives to net income, operating income
or any other performance measures derived in accordance with GAAP
or as alternatives to cash flow from operating activities as
measures of the Company's profitability or liquidity.
Adjusted EBITDA and non-GAAP net income have limitations as an
analytical tool, and you should not consider it in isolation or as
a substitute for analysis of the company's results as reported
under U.S. GAAP as the excluded items may have significant effects
on the Company's operating results and financial condition. When
evaluating the Company's performance, you should consider adjusted
EBITDA alongside other financial performance measures, including
cash flow metrics, net income, Operating income (loss) and the
Company's other U.S. GAAP results.
The following table presents a reconciliation of adjusted EBITDA
to net income for each of the periods indicated:
|
|
|
|
Three Months
Ended March 31, |
|
2014 |
2013 |
|
U.S. dollars (in
thousands) |
Reconciliation of adjusted EBITDA to
net income: |
|
|
Adjusted EBITDA |
$6,473 |
$2,951 |
Accounting for joint venture |
(168) |
(100) |
Depreciation and amortization |
(743) |
(376) |
Secondary offering related expenses |
(393) |
— |
Share-based compensation expense |
(137) |
(53) |
Operating income |
5,032 |
2,422 |
Financial expenses (income), net |
(24) |
81 |
Income before taxes on income |
5,056 |
2,341 |
Taxes on income |
(83) |
(75) |
Share in profits of equity investee |
137 |
78 |
Net income |
$5,110 |
$2,344 |
|
|
|
|
|
|
|
Three Months
Ended March 31, |
|
2014 |
2013 |
|
U.S. dollars (in
thousands) |
Reconciliation of Non-GAAP net income
to GAAP net income: |
|
|
Non-GAAP net income |
$5,640 |
$2,397 |
Secondary offering related
expenses |
(393) |
— |
Share-based compensation
expenses |
(137) |
(53) |
Net income |
$5,110 |
$2,344 |
|
ENZYMOTEC
LTD. |
CONDENSED CONSOLIDATED
UNAUDITED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME |
|
|
|
|
Three Months
Ended March 31, |
|
2014 |
2013 |
|
U.S. dollars in
thousands (except per share data) |
NET REVENUES |
$17,851 |
$13,830 |
COST OF REVENUES * |
6,860 |
7,282 |
GROSS PROFIT |
10,991 |
6,548 |
OPERATING EXPENSES: |
|
|
Research and development – net
* |
1,551 |
1,445 |
Selling and marketing * |
2,251 |
1,564 |
General and administrative
* |
2,157 |
1,117 |
Total operating
expenses |
5,959 |
4,126 |
OPERATING INCOME |
5,032 |
2,422 |
FINANCIAL INCOM (EXPENSES) –
net |
24 |
(81) |
INCOME BEFORE TAXES ON
INCOME |
5,056 |
2,341 |
TAXES ON INCOME |
(83) |
(75) |
SHARE IN PROFITS OF EQUITY
INVESTEE |
137 |
78 |
NET INCOME |
$5,110 |
$2,344 |
OTHER COMPREHENSIVE
INCOME: |
|
|
Currency translation
adjustments |
$ (7) |
$ (2) |
Cash flow hedge |
7 |
34 |
Total comprehensive
income |
$5,110 |
$2,376 |
EARNINGS PER SHARE: |
|
|
Basic |
$0.24 |
$0.15 |
Diluted |
$0.22 |
$0.12 |
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES: |
|
|
USED IN COMPUTATION OF EARNINGS PER
SHARE: |
|
|
Basic |
21,497,930 |
3,009,620 |
Diluted |
23,305,560 |
3,801,585 |
|
|
|
|
|
|
* The above items are inclusive
of the following share-based compensation expense: |
|
|
|
|
|
Cost of revenues |
$3 |
$3 |
Research and
development net |
4 |
9 |
Selling and marketing |
7 |
9 |
General and administrative |
123 |
32 |
|
$137 |
$53 |
ENZYMOTEC
LTD. |
CONDENSED CONSOLIDATED
AUDITED BALANCE SHEETS |
|
|
|
|
|
|
|
March 31 2014 |
December 31
2013 |
|
U.S. dollars in
thousands |
A s s e t s |
|
|
CURRENT ASSETS: |
|
|
Cash and cash equivalents |
$74,359 |
$74,430 |
Accounts receivable: |
|
|
Trade |
19,713 |
18,788 |
Other |
3,216 |
2,738 |
Inventories |
12,587 |
11,943 |
Total current assets |
109,875 |
107,899 |
NON-CURRENT ASSETS: |
|
|
Investment in equity
investee |
1,031 |
809 |
Intangibles, long-term deposits
and other |
1,295 |
111 |
Funds in respect of retirement
benefits obligation |
1,227 |
1,190 |
Total non-current assets |
3,553 |
2,110 |
PROPERTY, PLANT AND
EQUIPMENT: |
|
|
Cost |
34,861 |
33,385 |
L e s s - accumulated
depreciation and amortization |
7,484 |
7,021 |
|
27,377 |
26,364 |
Total assets |
$140,805 |
$136,373 |
|
|
|
|
|
|
Liabilities and shareholders'
equity |
|
|
CURRENT LIABILITIES: |
|
|
Current maturity of long-term
bank loan |
$ — |
$4,200 |
Accounts payable and
accruals: |
|
|
Trade |
8,185 |
6,418 |
Other |
7,566 |
6,378 |
Total current liabilities |
15,751 |
16,996 |
LONG-TERM LIABILITY -- |
|
|
Retirement benefits
obligation |
1,544 |
1,474 |
Total liabilities |
17,295 |
18,470 |
SHAREHOLDERS' EQUITY: |
|
|
Ordinary shares |
56 |
55 |
Additional paid-in capital |
120,043 |
119,547 |
Accumulated other comprehensive
loss |
(65) |
(65) |
Retained earnings (accumulated
deficit) |
3,476 |
(1,634) |
Total shareholders' equity |
123,510 |
117,903 |
Total liabilities and
shareholders' equity |
$140,805 |
$136,373 |
|
ENZYMOTEC
LTD. |
CONDENSED CONSOLIDATED
UNAUDITED STATEMENTS OF CASH FLOWS |
|
|
|
|
Three Months
Ended March 31 |
|
2014 |
2013 |
|
U.S. dollars in
thousands |
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
Net Income |
$5,110 |
$2,344 |
Adjustments required to reflect
cash flows from operations: |
|
|
Depreciation and
amortization |
743 |
376 |
Change in inventories |
(644) |
491 |
Change in accounts
receivable |
(1,403) |
(380) |
Change in accounts payable and
accruals |
882 |
(265) |
Share in profits of equity
investee |
(137) |
(78) |
Share-based compensation
expense |
137 |
53 |
Change in other non-current
assets |
49 |
(144) |
Change in retirement benefits
obligation |
61 |
50 |
Net cash provided by (used in)
operating activities |
4,798 |
2,447 |
CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
Purchase of property, plant and
equipment |
(896) |
(704) |
Long-term deposits |
(13) |
— |
Investment in equity
investee |
(92) |
— |
Change in funds in respect of
retirement benefits obligation |
(28) |
(36) |
Net cash used in investing
activities |
(1,029) |
(740) |
CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
Change in short-term loans |
— |
(1,000) |
Repayment of long-term bank
loan |
(4,200) |
(175) |
Exercise of option by
employees |
360 |
8 |
Proceeds from issuance of
equity and warrants |
— |
6,850 |
Net cash provided by (used in)
financing activities |
(3,840) |
5,683 |
NET CHANGE IN CASH AND CASH
EQUIVALENTS |
(71) |
7,390 |
BALANCE OF CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD |
74,430 |
2,729 |
BALANCE OF CASH AND CASH EQUIVALENTS
AT END OF PERIOD |
$74,359 |
$10,119 |
CONTACT: Company Contact:
Enzymotec Ltd.
Oren Bryan
Chief Financial Officer
Phone: +972747177177
ir@enzymotec.com
Investors Contact (US)
ICR
Katie Turner
646-277-1228
Katie.Turner@icrinc.com
John Mills
310-954-1105
John.Mills@icrinc.com
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