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, 2015.
First Quarter 2015 Financial Highlights
- The Company continues its recovery as revenues and adjusted
EBITDA increased for the third consecutive quarter on a sequential
basis.
- First quarter net revenues (equity method) increased 4.8%
compared to the fourth quarter of 2014, but decreased 36.7% to
$11.3 million, compared to the first quarter of 2014.
- First quarter net revenues (proportionate consolidation method)
increased 1.1% compared to the fourth quarter of 2014, but
decreased 39.5% to $14.4 million, compared to the first quarter of
2014.
- First quarter gross margin (equity method) increased 352 basis
points compared to the fourth quarter of 2014 and increased 40
basis points to 62.0% from 61.6% in the first quarter of 2014.
- First quarter adjusted EBITDA increased 32.4%, compared to the
fourth quarter of 2014, but decreased 58.6% to $2.7 million,
compared to the first quarter of 2014*.
- First quarter net income increased 53.9% compared to the fourth
quarter of 2014, but decreased 66.0% to $1.7 million, or $0.08 per
diluted share, compared to the first quarter of 2014.
- First quarter non-GAAP net income increased 46.9%, compared to
the fourth quarter of 2014, but decreased 62.3% to $2.1 million, or
$0.09 per diluted share, compared to the first quarter of
2014*.
- The Company reaffirms its previously issued guidance for 2015
and expects second quarter revenue growth to exceed the sequential
growth in the first quarter of 2015.
* A reconciliation of Non-GAAP financial measures to GAAP
financial measures is set forth below.
Recent Business Highlights:
- Granted new patents by the U.S. Patent and Trademark Office and
the Australian Patent Office that cover a wide variety of
phospholipid based compositions pertinent to Enzymotec's krill oil
products and advanced phospholipid products.
- VAYA Pharma U.S. launched its online pharmacy and call center
in the beginning of the year. The Company already sees higher
refill rate of online sales, compared to other sales channels.
- Announced positive results from a clinical trial comparing the
effectiveness of Vayarol® versus Ethyl Esters of Omega 3, which are
active ingredients in a leading brand, for the management of
moderate levels of triglycerides.
- Granted new patent related to InFat® in the U.S. related to
InFat's use in the treatment of gastro-intestinal disorders and
promotion of intestinal health
- Established a human milk research center in collaboration with
leading research institutes and key opinion leaders to further
explore the benefits of human milk and identify new components and
their clinical value.
"We are pleased to report another quarter of sequential top line
and bottom line growth. We continue to witness a stabilization of
the infant formula market. As the Chinese infant formula market
further shifts to an e-commerce platform, we see growth
opportunities in Asia and beyond as brands search for innovation in
order to differentiate their products and effectively compete in a
crowded space. We believe that our technology generates an
essential ingredient that adds significant value to any brand,"
commented Dr. Ariel Katz, Enzymotec's President and Chief Executive
Officer. "We have also maintained our strong presence in the krill
oil segment despite continued overcapacity in the market. Overall,
we believe that we are well positioned in this market with a
superior krill oil product and better cost structure as compared to
our peers."
"We believe VAYA Pharma represents a tremendous opportunity. The
substantial revenue growth we achieved in VAYA, both on a
sequential and year-over-year basis validates our allocation of
resources. Our current product portfolio targets large markets that
can be safely addressed with the dietary management of health
conditions and we are dedicated to advancing our clinical trials to
continue to strengthen our position in this burgeoning space. We
are working toward advancing our product offering and driving
future growth as we continue to evaluate strategic opportunities
for the business and execute on our business plan throughout the
year," stated Dr. Katz.
"Enzymotec remains in a financially strong position to support
its growth initiatives. Even with the investments we committed
to the business this year, our cash flow continues to improve and
we remain profitable. We had a strong first quarter,
generating $3.1M in operating cash flow and our cash balance stands
at $3.03 per share. We are committed to returning the Company to a
growth profile that will leverage our leading lipid technology and
drive shareholder value," concluded Dr. Katz.
First Quarter 2015 Results
For the first quarter of 2015, based on the proportionate
consolidation method, net revenues decreased 39.5% to $14.4 million
from $23.7 million for the first quarter of 2014. For the first
quarter of 2015, based on the equity method of accounting, net
revenues decreased 36.7% to $11.3 million from $17.9 million for
the first quarter of 2014. The decrease was primarily due to a
decrease of $5.6 million in InFat sales (proportionate
consolidation method) and $4.9 million in krill sales, partially
offset by increased sales of VAYA products of $0.8 million and
increased sales of PS products of $0.3
million.
Gross margin (equity method) for the first quarter of 2015
increased 40 basis points to 62.0% from 61.6% for the first quarter
of 2014 primarily due to an increase in the volume of sales of VAYA
products which carry a higher gross margin than some other
products.
Selling and marketing expenses for the first quarter of 2015
increased to $2.4 million from $2.3 million in the first quarter of
2014, and from $1.8 million in the fourth quarter of 2014,
primarily as a result of expanding VAYA Pharma's operations and
infrastructure partially offset by higher license amortization
expenses in the first quarter of 2014 related to the settlement and
license agreement signed with Neptune.
General and administrative expenses for the first quarter of
2015 decreased to $1.5 million from $2.2 million in the first
quarter of 2014, primarily due to a decrease in patent-related
legal expenses and expenses incurred in the first quarter of 2014
related to the secondary public offering in February 2014.
Adjusted EBITDA for the first quarter of 2015 decreased 58.6% to
$2.7 million from $6.5 million for the first quarter of 2014, but
increased 32.4%, compared to the fourth quarter of 2014. A
reconciliation of adjusted EBITDA to net income is set forth
below.
Net income for the first quarter of 2015 decreased to $1.7
million, or $0.08 per diluted share from $5.1 million, or $0.22 per
diluted share for the first quarter last year.
Non-GAAP net income decreased to $2.1 million, or $0.09 per
diluted share, from $5.6 million, or $0.24 per diluted share for
the first quarter of 2014.
Below is segment information for the three months ended March
31, 2015 and 2014:
|
Three Months
Ended March 31, 2015 |
|
Nutrition Segment |
VAYA Pharma Segment |
Total Segment Results of
Operations |
Elimination(1) |
Consolidated Results of Operations |
|
(in
thousands) |
Net revenues |
$ 12,246 |
$ 2,107 |
$ 14,353 |
$ (3,054) |
$ 11,299 |
Cost of revenues(2) |
6,798 |
414 |
7,212 |
(2,945) |
4,267 |
Gross profit(2) |
5,448 |
1,693 |
7,141 |
(109) |
7,032 |
Operating expenses(2) |
2,928 |
2,065 |
4,993 |
— |
4,993 |
Depreciation and amortization |
487 |
48 |
535 |
|
|
Adjusted EBITDA(4) |
$ 3,007 |
$ (324) |
$ 2,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
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 |
|
|
____________________ |
|
|
|
|
|
(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 (Advanced Lipids), the
Company's 50%-owned joint venture, using the equity method of
accounting, meaning that the Company recognizes its share in the
net results of Advanced Lipids 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, 2015 and 2014, sales of the Company through this joint
collaboration amounted to $2.9 million and $5.6 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 analyse the relevant segment's
results of operations, the Company accounts for the results of
operations of Advanced Lipids 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 Advanced Lipids, using the proportionate
consolidation method. Under the proportionate consolidation method,
the Company recognizes its proportionate share of the gross
revenues of Advanced Lipids 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, 2015, we had $70.0 million in cash and cash
equivalents, short-term bank deposits and short-term and long-term
marketable securities, $29.8 million in other working capital items
and no debt.
Guidance for 2015
For the full fiscal year 2015, the Company reaffirms the
following guidance ranges:
- Net revenues, based on the equity method of accounting, of
between $52 million and $60 million
- Net revenues, based on the proportionate consolidation method,
of between $65 million and $75 million
- Non-GAAP net income of between $5 million and $8
million
- Non-GAAP diluted earnings per share (EPS) of between $0.21 and
$0.34
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. EDT to
discuss the financial results for the first quarter of 2015.
Listeners in North America may dial +1-877-359-9508 and
international listeners may dial +1-224-357-2393 along with
confirmation code 34316444 to access the live call. The call will
also be broadcast live over the Internet, hosted in the Investors
section of Enzymotec's website at
http://edge.media-server.com/m/p/ac78fbrw and will be archived
online within one hour of its completion through May 14, 2015.
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 include the following risks: A high proportion of
the sales of the InFat product is sold to end users in China and to
a single company; The demand for products based on Omega-3 and in
particular, premium products, such as krill oil, has declined and
may continue to decline following a significant increase in
manufacturing capacity by manufacturers of these products,
resulting in intense competition and price pressure; 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 in arbitration
proceeding; We are subject to a degree of customer concentration
and our customers do not enter into long-term purchase commitments
with us; We depend on third parties to obtain raw materials, in
particular krill, necessary for the production of our products; We
are dependent on a single facility that houses the majority of our
operations; We may have to pay royalties with respect to sales of
our krill oil products in the United States or Australia and any
infringement of intellectual property of others could also require
us to pay royalties; Potential future acquisitions of companies or
technologies may distract our management, may disrupt our business
and may not yield the returns expected; We anticipate that the
markets in which we participate will become more competitive and we
may be unable to compete effectively; We may not be able to
successfully expand our production or processing capabilities; 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; and other factors discussed under the
heading "Risk Factors" in the Company's Form 20-F filed with the
Securities and Exchange Commission on March 2, 2015.
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 (i) financial expenses, net, (ii)
taxes on income, (ii) depreciation and amortization, (iv)
share-based compensation expense, and (v) 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, operating income, net income, 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, |
|
2015 |
2014 |
|
U.S. dollars (in
thousands) |
Reconciliation of adjusted EBITDA to
net income: |
|
|
Adjusted EBITDA |
$2,683 |
$6,473 |
Accounting for joint venture |
(109) |
(168) |
Depreciation and amortization |
(535) |
(743) |
Secondary offering related expenses |
|
(393) |
Share-based compensation expense |
(388) |
(137) |
Operating income |
1,651 |
5,032 |
Financial income, net |
(99) |
(24) |
Income before taxes on income |
1,750 |
5,056 |
Taxes on income |
(94) |
(83) |
Share in profits of equity investee |
83 |
137 |
Net income |
$1,739 |
$5,110 |
|
|
|
|
|
|
|
Three Months
Ended March 31, |
|
2015 |
2014 |
|
U.S. dollars (in
thousands) |
Reconciliation of Non-GAAP net income
to GAAP net income: |
|
|
Non-GAAP net income |
$2,127 |
$5,640 |
Secondary offering related
expenses |
|
(393) |
Share-based compensation
expenses |
(388) |
(137) |
Net income |
$1,739 |
$5,110 |
|
ENZYMOTEC
LTD. |
CONDENSED CONSOLIDATED
UNAUDITED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME |
|
|
|
|
Three Months
Ended March 31, |
|
2015 |
2014 |
|
U.S. dollars in
thousands (except per share data) |
NET REVENUES |
$11,299 |
$17,851 |
COST OF REVENUES * |
4,297 |
6,860 |
GROSS PROFIT |
7,002 |
10,991 |
OPERATING EXPENSES: |
|
|
Research and development – net
* |
1,414 |
1,551 |
Selling and marketing * |
2,423 |
2,251 |
General and administrative
* |
1,514 |
2,157 |
Total operating
expenses |
5,351 |
5,959 |
OPERATING INCOME |
1,651 |
5,032 |
FINANCIAL INCOME – net |
99 |
24 |
INCOME BEFORE TAXES ON
INCOME |
1,750 |
5,056 |
TAXES ON INCOME |
(94) |
(83) |
SHARE IN PROFITS OF EQUITY
INVESTEE |
83 |
137 |
NET INCOME |
$1,739 |
$5,110 |
OTHER COMPREHENSIVE
INCOME: |
|
|
Currency translation
adjustments |
($128) |
($7) |
Unrealized loss on marketable
securities |
118 |
|
Cash flow hedge |
634 |
7 |
TOTAL COMPREHENSIVE
INCOME |
$2,363 |
$5,110 |
EARNINGS PER SHARE: |
|
|
Basic |
$0.08 |
$0.24 |
Diluted |
$0.08 |
$0.22 |
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES: |
|
|
USED IN COMPUTATION OF EARNINGS PER
SHARE: |
|
|
Basic |
22,379,987 |
21,497,930 |
Diluted |
23,056,663 |
23,305,560 |
|
|
|
|
|
|
* The above items are inclusive
of the following |
|
|
share-based compensation
expense: |
|
|
|
|
|
Cost of revenues |
$30 |
$3 |
Research and development -
net |
56 |
4 |
Selling and marketing |
97 |
7 |
General and administrative |
205 |
123 |
|
$388 |
$137 |
|
ENZYMOTEC
LTD. |
CONDENSED CONSOLIDATED
AUDITED BALANCE SHEETS |
|
|
|
|
March 31 |
December 31 |
|
2015 |
2014 |
|
U.S. dollars in
thousands |
Assets |
|
|
CURRENT ASSETS: |
|
|
Cash and cash equivalents |
$12,596 |
$10,315 |
Short-term bank deposits and
marketable securities |
23,739 |
21,913 |
Accounts receivable: |
|
|
Trade |
13,641 |
13,433 |
Other |
4,177 |
3,110 |
Inventories |
21,964 |
21,572 |
Total current assets |
76,117 |
70,343 |
NON-CURRENT ASSETS: |
|
|
Investment in equity
investee |
1,107 |
1,152 |
Marketable securities |
33,636 |
35,287 |
Intangibles, long-term deposits
and other |
1,173 |
1,200 |
Funds in respect of retirement
benefits obligation |
1,000 |
994 |
Total non-current assets |
36,916 |
38,633 |
PROPERTY, PLANT AND
EQUIPMENT: |
|
|
Cost |
38,698 |
38,237 |
Less - accumulated depreciation
and amortization |
9,464 |
8,963 |
|
29,234 |
29,274 |
Total assets |
$142,267 |
$138,250 |
|
|
|
|
|
|
Liabilities and shareholders'
equity |
|
|
CURRENT LIABILITIES: |
|
|
Accounts payable and
accruals: |
|
|
Trade |
$5,686 |
$5,259 |
Other |
4,342 |
3,569 |
Total current liabilities |
10,028 |
8,828 |
LONG-TERM LIABILITY -- |
|
|
Retirement benefits
obligation |
1,159 |
1,150 |
Total liabilities |
11,187 |
9,978 |
SHAREHOLDERS' EQUITY: |
|
|
Ordinary shares |
58 |
57 |
Additional paid-in capital |
122,519 |
122,075 |
Accumulated other comprehensive
income (loss) |
560 |
(64) |
Retained earnings |
7,943 |
6,204 |
Total shareholders' equity |
131,080 |
128,272 |
Total liabilities and
shareholders' equity |
$142,267 |
$138,250 |
|
ENZYMOTEC
LTD. |
CONDENSED CONSOLIDATED
UNAUDITED STATEMENTS OF CASH FLOWS |
|
|
|
|
Three Months
Ended March 31 |
|
2015 |
2014 |
|
U.S. dollars in
thousands |
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
Net Income |
$1,739 |
$5,110 |
Adjustments required to reflect
cash flows from operations: |
|
|
Depreciation and
amortization |
535 |
743 |
Change in inventories |
(392) |
(644) |
Change in accounts receivable
and other |
(525) |
(1,403) |
Change in accounts payable and
other |
1,543 |
882 |
Share in profits of equity
investee |
(83) |
(137) |
Share-based compensation
expense |
388 |
137 |
Loss from sale of property,
plant and equipment |
3 |
|
Change in other non-current
assets |
(91) |
49 |
Change in retirement benefits
obligation |
31 |
61 |
Net cash provided by operating
activities |
3,148 |
4,798 |
CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
Purchase of property, plant and
equipment |
(818) |
(896) |
Investment in bank deposits and
marketable securities |
(2,023) |
|
Long-term deposits |
1 |
(13) |
Proceeds from sale of property,
plant and equipment |
5 |
|
Proceeds from sale of
marketable securities |
1,939 |
|
Investment in equity
investee |
|
(92) |
Change in funds in respect of
retirement benefits obligation |
(28) |
(28) |
Net cash used in investing
activities |
(924) |
(1,029) |
CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
Repayment of long-term bank
loan |
|
(4,200) |
Exercise of option by
employees |
57 |
360 |
Net cash provided by (used in)
financing activities |
57 |
(3,840) |
NET CHANGE IN CASH AND CASH
EQUIVALENTS |
2,281 |
(71) |
BALANCE OF CASH AND CASH
EQUIVALENTS |
|
|
AT BEGINNING OF
PERIOD |
10,315 |
74,430 |
BALANCE OF CASH AND CASH
EQUIVALENTS |
|
|
AT END OF
PERIOD |
$12,596 |
$74,359 |
CONTACT: Company Contact
Enzymotec Ltd.
Oren Bryan
Chief Financial Officer
Phone: +972747177177
ir@enzymotec.com
Investor Relations Contact (US)
KCSA Strategic Communications
Tram Bui / Jeffrey Goldberger
212.896.1290 / 212.896.1249
ENZY@kcsa.com
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