Nutrition Segment increased Adjusted
EBITDA* to $4M, representing 27% year-over-year and 17% sequential
growth
Enzymotec Ltd. (Nasdaq:ENZY), a developer, manufacturer and
marketer of innovative bio-active lipid ingredients and medical
foods, today reported financial results for the third quarter ended
September 30, 2016.
Third Quarter 2016 Financial and
Operational Highlights
- Net revenues decreased 8.2% and 2.7% to $11.4 million, compared
to the third quarter of 2015 and the second quarter of 2016,
respectively.
- Net revenues (utilizing the proportionate consolidation method
that is used for segment reporting) increased 1.4% and 1.6% to
$15.2 million, compared to the third quarter of 2015 and the second
quarter of 2016, respectively.
- Gross margin increased 590 basis points to 66.0%, from 60.1% in
the third quarter of 2015 and decreased 400 basis points from 70.0%
in the second quarter of 2016.
- Selling and marketing expenses increased 62.5% to $4.3 million,
compared to the third quarter of 2015 and decreased 11.6%, compared
to the second quarter of 2016.
- Adjusted EBITDA* decreased 54.0% and 21.5% to $1.3 million,
compared to the third quarter of 2015 and the second quarter of
2016, respectively.
- GAAP net loss for the third quarter amounted to $(0.4) million,
or $(0.01) per diluted share, compared to GAAP net income of $1.5
million in the third quarter of 2015 and GAAP net income of $0.2
million in the second quarter of 2016.
- Non-GAAP net income* decreased 68.3% and 24.1% to $0.6 million,
or $0.03 per diluted share, compared to the third quarter of 2015
and the second quarter of 2016, respectively.
- The Company provides updated guidance for the full fiscal year
ended December 31, 2016.
- Announced departure of Dr. Ariel Katz, President and Chief
Executive Officer, by the end of May 2017.
- Board of Directors to initiate search for permanent replacement
for CEO position.
* A reconciliation of non-GAAP financial
measures to GAAP financial measures is set forth below.
Recent Business Highlights:
Nutrition Segment
- Generated $4.0 million in Adjusted EBITDA in the third quarter,
representing 27% year-over year and 17% sequential growth.
- New infant formula launches result in strong sales of
INFAT®.
- Granted new patents for INFAT® by U.S. Patent and Trademark
Office and phospholipid-based products in Canada and Korea.
VAYA Pharma Segment
- Third quarter “sales out”, or sales to end-users, based on IMS
data and VAYA Pharma’s online sales channel grew 45% year-over-year
and 14% sequentially.
- VAYA Pharma’s online pharmacy accounted for approximately 45%
of total prescriptions.
- Growth focused in the online pharmacy led to an inventory
destocking by wholesalers, negatively impacting sales by $1.5
million in the third quarter.
- Recruitment of three clinical trials in Autism and ADHD near
completion, which is expected to slightly decrease research and
development expenses in 2017.
- Granted patent for Vayacog® in Japan.
“Infant nutrition continued to perform well,
helping to generate over $4.0 million in Adjusted EBITDA in the
Nutrition segment for the third quarter, led by the increased
adoption of INFAT by a growing number of leading infant formula
companies. We believe that INFAT along with our pipeline of new
infant nutritional products will be key growth drivers for
Enzymotec in the future. VAYA Pharma’s results for the quarter were
negatively impacted by wholesalers selling through existing
inventory since our sales-out growth came primarily from our online
channel, which hurt our overall results. This trend may continue
over the coming quarters, as we expect the bulk of future sales
growth to flow through our online pharmacy resulting in a slower
growth rate in the wholesale channel. We believe that the aggregate
impact of any future destocking should not exceed $1.0 million.
When the wholesaler channel growth rate stabilizes, we believe VAYA
Pharma’s fluctuation in quarterly sales may lessen. VAYA Pharma’s
efficient and primarily self-pay business model continues to
generate strong growth in demand for our prescription products and
we remain determined to significantly reduce the losses in this
business and bring it towards profitability by the end of next
year,” commented Dr. Ariel Katz, Enzymotec’s President and Chief
Executive Officer.
“To better take advantage of Enzymotec’s
opportunities in infant nutrition and VAYA Pharma, we plan to
further strengthen our efforts to ensure positive organic growth.
While krill oil remains a contributor to our earnings, it is not
expected to positively impact our growth strategy, and we are
assessing alternatives regarding optimization of this opportunity,”
concluded Dr. Katz.
Third Quarter 2016 Results
For the third quarter of 2016, net revenues
decreased 8.2% to $11.4 million from $12.4 million for the third
quarter of 2015. For the third quarter of 2016, based on the
proportionate consolidation method that is used for segment
reporting, net revenues increased 1.4% to $15.2 million from $15.0
million for the third quarter of 2015. The increase was primarily
attributable to an increase of $2.2 million in INFAT® sales
(proportionate consolidation method), partially offset by decreased
sales of krill products of $1.1 million, decreased sales of PS
products of $0.5 million and decreased sales of VAYA Pharma
products of $0.4 million.
Gross margin for the third quarter of 2016
increased 590 basis points to 66.0% from 60.1% for the third
quarter of 2015 primarily due to improved product mix.
Research and development expenses for the third
quarter of 2016 increased 27.5% to $1.9 million from $1.5 million
in the third quarter of 2015, primarily due to an increase of $0.3
million in expenses related to the VAYA Pharma clinical trials.
Research and development expenses are expected to slightly decrease
in 2017 as the recruitment process for three clinical trials in
Autism and ADHD are nearing completion.
Selling and marketing expenses for the third
quarter of 2016 increased 62.5% to $4.3 million from $2.7 million
in the third quarter of 2015, primarily as a result of the
expansion of VAYA Pharma's sales force and infrastructure and
related marketing activities in the U.S.
General and administrative expenses for the
third quarter of 2016 increased 8.3% to $1.9 million from $1.8
million in the third quarter of 2015. General and administrative
expenses for the third quarter of 2016 include $0.3 million for
business development related expenses.
GAAP net loss for the third quarter of 2016
amounted to $(0.3) million, or $(0.01) per diluted share compared
to net income of $1.5 million, or $0.07 per diluted share, for the
third quarter of last year.
Non-GAAP net income for the third quarter of
2016 decreased to $0.6 million, or $0.03 per diluted share, from
$2.0 million, or $0.08 per diluted share, for the third quarter of
2015. A reconciliation of non-GAAP net income to GAAP net income or
loss is set forth below.
Adjusted EBITDA for the third quarter of 2016
decreased 54.0% to $1.3 million from $2.7 million for the third
quarter of 2015. The decrease was driven by a decrease of $2.3
million in the Adjusted EBITDA in the VAYA Pharma segment,
partially offset by an increase of $0.8 million in the Adjusted
EBITDA in the Nutrition segment. A reconciliation of adjusted
EBITDA, a non-GAAP financial measure, to GAAP net income or loss is
set forth below.
Set forth below is segment information for the three months
ended September 30, 2016 and 2015 (unaudited):
|
|
Three Months Ended September 30,
2016 |
|
|
NutritionSegment |
|
VAYAPharmaSegment |
|
TotalSegmentResults ofOperations |
|
Elimination(1) |
|
ConsolidatedResults ofOperations |
|
|
U.S. dollars in thousands |
|
|
|
Net
revenues |
|
$ |
13,371 |
|
|
$ |
|
1,839 |
|
|
|
$ |
15,210 |
|
|
$ |
|
(3,798 |
) |
|
|
$ |
11,412 |
|
Cost
of revenues(2) |
|
|
7,114 |
|
|
|
|
365 |
|
|
|
|
7,479 |
|
|
|
|
(3,642 |
) |
|
|
|
3,837 |
|
Gross
profit(2) |
|
|
6,257 |
|
|
|
|
1,474 |
|
|
|
|
7,731 |
|
|
|
|
(156 |
) |
|
|
|
7,575 |
|
Operating expenses(3) |
|
|
2,753 |
|
|
|
|
4,410 |
|
|
|
|
7,163 |
|
|
|
|
— |
|
|
|
|
7,163 |
|
Depreciation and amortization |
|
|
511 |
|
|
|
|
175 |
|
|
|
|
686 |
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA(4) |
|
$ |
4,015 |
|
|
$ |
|
(2,761 |
) |
|
|
$ |
1,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
2015 |
|
|
NutritionSegment |
|
VAYAPharmaSegment |
|
TotalSegmentResults ofOperations |
|
Elimination(1) |
|
ConsolidatedResults ofOperations |
|
|
U.S. dollars in thousands |
|
|
|
Net
revenues |
|
$ |
12,781 |
|
|
$ |
|
2,226 |
|
|
|
$ |
15,007 |
|
|
$ |
|
(2,579 |
) |
|
|
$ |
12,428 |
|
Cost
of revenues(2) |
|
|
7,064 |
|
|
|
|
341 |
|
|
|
|
7,405 |
|
|
|
|
(2,467 |
) |
|
|
|
4,938 |
|
Gross
profit(2) |
|
|
5,717 |
|
|
|
|
1,885 |
|
|
|
|
7,602 |
|
|
|
|
(112 |
) |
|
|
|
7,490 |
|
Operating expenses(2) |
|
|
3,094 |
|
|
|
|
2,381 |
|
|
|
|
5,475 |
|
|
|
|
|
|
|
5,475 |
|
Depreciation and amortization |
|
|
546 |
|
|
|
|
54 |
|
|
|
|
600 |
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA(4) |
|
$ |
3,169 |
|
|
$ |
|
(442 |
) |
|
|
$ |
2,727 |
|
|
|
|
|
|
|
|
|
____________________(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
business development 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.
Nine Months Results
Net revenues for both the nine months ended
September 30, 2016 and September 30, 2015 amounted to
$37.1 million. Based on the proportionate consolidation method that
is used for segment reporting, net revenues for the nine months
ended September 30, 2016 increased 3.1% to $47.3 million, from
$45.9 million for the same period a year ago. The increase was
primarily due to an increase of $3.2 million in sales of INFAT®
products (proportionate consolidation method), an increase of $2.2
million in sales of VAYA Pharma products and an increase of $0.5
million in sales of PS products, partially, offset by a decrease of
$4.5 million in sales of krill products.
Gross margin for the nine months ended
September 30, 2016 increased 670 basis points to 67.6% from
60.9% for the same period a year ago, primarily due to improved
product mix.
Research and development expenses for the nine
months ended September 30, 2016 increased 27.9% to $5.6
million from $4.4 million for the same period a year ago, primarily
due to an increase of $1.1 million in expenses related to the VAYA
Pharma clinical trials.
Selling and marketing expenses for the nine
months ended September 30, 2016 increased 73.9% to $13.5
million from $7.8 million for the same period a year ago, primarily
as a result of the expansion of VAYA Pharma's operations and
infrastructure (including sales force and related marketing
activities in the U.S).
General and administrative expenses for the nine
months ended September 30, 2016 decreased 7.5% to $5.0 million
from $5.4 million for the same period a year ago, primarily due to
a decrease in litigation costs related to the arbitration with AAK,
the Company’s partner in the joint venture in Sweden, Advanced
Lipids AB.
Net income for the nine months ended
September 30, 2016 decreased 76.7% to $1.3 million, or $0.06
per diluted share, from $5.5 million, or $0.24 per diluted share,
for the same period a year ago.
Non-GAAP net income for the nine months ended
September 30, 2016 decreased 47.7% to $3.5 million, or $0.15
per diluted share, from $6.8 million, or $0.29 per diluted share
for the same period a year ago. A reconciliation of non-GAAP net
income to GAAP net income is set forth below.
Adjusted EBITDA for the nine months ended
September 30, 2016 decreased 32.6% to $5.6 million, from $8.3
million for the same period in the prior year. A reconciliation of
adjusted EBITDA, a non-GAAP financial measure, to GAAP net income
is set forth below.
Set forth below is segment information for the
nine months ended September 30, 2016 and 2015 (unaudited):
|
|
Nine Months Ended September 30,
2016 |
|
|
NutritionSegment |
|
VAYAPharmaSegment |
|
TotalSegmentResults ofOperations |
|
Elimination(1) |
|
ConsolidatedResults ofOperations |
|
|
U.S. dollars in thousands |
|
|
|
Net
revenues |
|
$ |
38,984 |
|
|
$ |
|
8,342 |
|
|
|
$ |
47,326 |
|
|
$ |
|
(10,214 |
) |
|
|
$ |
37,112 |
|
Cost
of revenues(2) |
|
|
20,211 |
|
|
|
|
1,535 |
|
|
|
|
21,746 |
|
|
|
|
(9,832 |
) |
|
|
|
11,914 |
|
Gross
profit(2) |
|
|
18,773 |
|
|
|
|
6,807 |
|
|
|
|
25,580 |
|
|
|
|
(382 |
) |
|
|
|
25,198 |
|
Operating expenses(3) |
|
|
8,798 |
|
|
|
|
13,186 |
|
|
|
|
21,984 |
|
|
|
|
|
|
|
21,984 |
|
Depreciation and amortization |
|
|
1,633 |
|
|
|
|
363 |
|
|
|
|
1,996 |
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA(4) |
|
$ |
11,608 |
|
|
$ |
|
(6,016 |
) |
|
|
$ |
5,592 |
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
2015 |
|
|
NutritionSegment |
|
VAYAPharmaSegment |
|
TotalSegmentResults ofOperations |
|
Elimination(1) |
|
ConsolidatedResults ofOperations |
|
|
U.S. dollars in thousands |
|
|
|
Net
revenues |
|
$ |
39,710 |
|
|
$ |
|
6,174 |
|
|
|
$ |
45,884 |
|
|
$ |
|
(8,762 |
) |
|
|
$ |
37,122 |
|
Cost of
revenues(2) |
|
|
21,712 |
|
|
|
|
1,126 |
|
|
|
|
22,838 |
|
|
|
|
(8,403 |
) |
|
|
|
14,435 |
|
Gross
profit(2) |
|
|
17,998 |
|
|
|
|
5,048 |
|
|
|
|
23,046 |
|
|
|
|
(359 |
) |
|
|
|
22,687 |
|
Operating expenses(2) |
|
|
9,538 |
|
|
|
|
6,895 |
|
|
|
|
16,433 |
|
|
|
|
(3 |
) |
|
|
|
16,430 |
|
Depreciation and amortization |
|
|
1,538 |
|
|
|
|
142 |
|
|
|
|
1,680 |
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA(4) |
|
$ |
9,998 |
|
|
$ |
|
(1,705 |
) |
|
|
$ |
8,293 |
|
|
|
|
|
|
|
|
|
____________________(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
business development 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
The Company accounts for the results of
operation of Advanced Lipids AB (Advanced Lipids), the Company's
50%-owned joint venture, utilizing the equity method of accounting
as required by U.S. GAAP. We recognize two sources of income from
the JV arrangement. First, we recognize revenue for the enzymes
sold by us to AAK upon the sale of the final INFAT® product by
Advanced Lipids to its customers. 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 an agreed-upon margin defined in the joint venture
agreement. For the three-month periods ended September 30, 2016 and
2015, sales of enzymes to the joint venture partner amounted to
$4.4 million and $3.4 million, respectively. For the nine-month
periods ended September 30, 2016 and 2015, sales of enzymes to the
joint venture partner amounted to $11.9 million and $10.1 million,
respectively. In addition, we also record our share of Advanced
Lipids profits under the equity method of accounting. The Advanced
Lipids profits that are shared between us and AAK are the profits
that Advanced Lipids earns for its distribution activity.
For purposes of segment reporting, we account
for the arrangement with AAK and the results of operations of
Advanced Lipids using the proportionate consolidation method. Under
the proportionate consolidation method, we recognize our
proportionate share (50%) of the revenues of Advanced Lipids and
record our proportionate share (50%) of the overall joint venture’s
costs of production and other operating expenses in our income
statement. 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.
Balance Sheet and Liquidity
Data
As of September 30, 2016, we had $77.4 million
in cash and cash equivalents, short-term bank deposits and
short-term and long-term marketable securities (compared to $76.4
million as of December 31, 2015), $31.3 million in other working
capital items (compared to $28.2 million as of December 31, 2015)
and no debt.
Legal Highlights
Class Action
As previously disclosed, on September 5, 2014
and September 30, 2014, two stockholders filed class action
complaints in the United States District Court for the District of
New Jersey purportedly on behalf of all persons who acquired the
Company’s ordinary shares in its initial public offering (the
“IPO”) or between September 27, 2013 and August 4, 2014, naming the
Company, its directors, certain of its officers and the
underwriters of its IPO as defendants. The lawsuits assert claims
under the United States federal securities laws by claiming that
the Company made false and misleading statements concerning its
infant formula business in China and krill oil business. After the
cases were consolidated as in re Enzymotec Ltd. Securities
Litigation, the lead plaintiff filed an amended complaint on May
18, 2015 asserting essentially the same claims as the claims
asserted in the initial class action complaints, but not naming the
underwriters of the IPO as defendants. The claims related to the
Company’s krill oil business were subsequently dismissed by the
Court, while the defendants’ motion to dismiss the claims related
to the infant formula business in China was denied. Defendants
answered the amended complaint on February 19, 2016 and the parties
commenced discovery.
Subsequently, the parties participated in a
mediation where they reached an agreement in principle to settle
the securities class action lawsuits. Under the proposed class
action settlement, the claims against the Company and its officers
and directors will be dismissed with prejudice and released in
exchange for a cash payment of $6.5 million to be funded by the
Company’s insurers. The proposed settlement remains subject to the
satisfaction of various conditions, including negotiation and
execution of a final stipulation of settlement, and approval by the
U.S. District Court for the District of New Jersey following notice
to members of the class.
The Company and the individual defendants have
steadfastly maintained that the claims raised in the securities
class action lawsuits were without merit, and have vigorously
contested those claims. As part of the settlement, the Company and
the individual defendants continue to deny any liability or
wrongdoing under the securities laws or otherwise.
Neptune Patent Dispute
On April 27, 2014, Neptune Technologies &
Bioresources, Inc. (“Neptune”) and the Company
entered into a Settlement Agreement (the “Settlement
Agreement”), pursuant to which all civil actions
previously filed by Neptune against the Company were dismissed with
prejudice on May 2, 2014, and the U.S. International Trade
Commission action based on Neptune's complaint was terminated on
June 12, 2014.
On November 2, 2016, Neptune sent the Company a
Notice of Default and Termination in respect of the Settlement
Agreement based on what it characterized as material breaches. The
Company believes there have not been any material breaches of the
Settlement Agreement and intends to vigorously defend its rights
under the Settlement Agreement.
Guidance for 2016
For the full fiscal year 2016, the Company
provides the following updates to guidance:
- Net revenues of between $47.5 million and $49.5 million
- Net revenues, based on the proportionate consolidation method
that is used for segment reporting, of between $61 million and $63
million
- Non-GAAP net income* of between $4 million and $4.5
million
- Non-GAAP diluted earnings per share (EPS)* of between $0.17 and
$0.19
The revised full year guidance primarily
reflects the destocking during the third quarter by wholesalers in
VAYA Pharma as well as a slower than expected sales ramp in the
business for the remainder of the year. In addition, the bioactive
division continued to negatively impact revenue during the third
quarter leading into the fourth quarter as the krill oil industry
remains burdened with overcapacity that has driven heavy price
competition.
* 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. For a reconciliation of non-GAAP
financial measures to GAAP financial measures, see “Non-GAAP
Financial Measures” below.
Conference Call Details
Enzymotec will host a conference call today at
8:30 am ET to discuss the financial results for the third quarter
of 2016. Listeners in North America may dial +1-877-359-9508 and
international listeners may dial +1-224-357-2393 along with
confirmation code 12583905 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/7bvtahd6 and will be archived
online within one hour of its completion.
Forward Looking Statements
This press release may contain forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, Section 21E of the Securities Exchange Act of
1934, as amended and the safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995, that are based on our
management’s beliefs and assumptions and on information currently
available to our management. Forward-looking statements include all
statements that are not historical facts and can be identified by
terms such as “anticipates,” “believes,” “could,” “seeks,”
“estimates,” “expects,” “intends,” “may,” “plans,” “potential,”
“predicts,” “projects,” “should,” “will,” “would” or similar
expressions that convey uncertainty of future events or outcomes
and the negatives of those terms. Forward-looking statements
include information concerning our possible or assumed future
results of operations, business strategies, financing plans,
competitive position, industry environment, potential growth
opportunities, potential market opportunities and the effects of
competition. 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. Some of the important factors that
could cause or contribute to such differences include the
following: a high proportion of the sales of the INFAT® product is
to our customers who then use it in their infant formula products
sold to end users in China and therefore our revenues are subject
to the effects of Chinese market trends and competition from
locally produced products that are not subject to import taxes;
growth in the Chinese economy has moderated and this slowdown and
related volatility could adversely impact demand for our products
in China; we are subject to a degree of customer concentration and
our customers do not enter into long-term purchase commitments with
us; the demand for products based on omega-3, and, in particular,
premium products such as krill oil, has declined in the past and
may continue to decline, which, together with a significant
increase in capacity by competing manufacturers, may continue to
cause intense competition and price pressures; Chinese regulations
relating to infant formula are under re-examination, and any
regulatory changes affecting the ability of our customers to market
infant nutrition products containing INFAT® could adversely affect
our business; we rely on our Swedish joint venture partner to
manufacture INFAT®; a significant portion of the sales of our
INFAT® product is to a single company and if this company were to
suffer financially or reduce its use of INFAT® our business could
be materially adversely affected; our offering of products as
"medical foods" in the United States may be challenged by
regulatory authorities; our product development cycle is lengthy
and uncertain, and our development or commercialization efforts for
our products may be unsuccessful; our inventories include sensitive
compounds which may face spoilage or obsolescence; potential future
acquisitions of companies or technologies may require management’s
time and attention, disrupt our business and not yield the returns
expected; variations in the cost of raw materials for the
production of INFAT® may have a material adverse effect on our
business; we are dependent on a single facility that houses the
majority of our operations; we anticipate that the markets in which
we operate will become more competitive and we may be unable to
compete effectively; 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; unfavorable publicity or consumer
perception of our products, the supplements that contain them as
ingredients and any similar products distributed by other companies
could have a material adverse effect on our reputation, the demand
for our products and our business; we depend on third parties to
obtain raw materials, in particular krill, necessary for the
production of our products; we are generally reliant upon third
parties for the distribution or commercialization of our products;
we may not be able to maintain or increase market acceptance for
our products; we are subject to risks relating to the operation and
expansion of our production or processing facilities and
capabilities; disruption to our IT system could adversely affect
our reputation and have a material adverse impact on our business
and results of operations; we are not able to predict the results
of clinical trials, which may prove unsuccessful or be delayed by
certain factors; our ability to obtain krill may be affected by
conservation regulation or initiatives; we could be subject to
product liability lawsuits, which could result in costly and
time-consuming litigation and significant liabilities; and other
factors discussed under the heading "Risk Factors" in our annual
report on Form 20-F for the year ended December 31, 2015 filed with
the Securities and Exchange Commission (the “SEC”) on March 3, 2016
and in other documents filed or furnished with the SEC.
You should not put undue reliance on any
forward-looking statements. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee that future results, levels of
activity, performance and events and circumstances reflected in the
forward-looking statements will be achieved or will occur. 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, (iii) 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 excluding 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
substitutes for, but rather as supplements 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 and non-GAAP net income to GAAP net income or loss
for each of the periods indicated (unaudited):
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|
2016 |
2015 |
2016 |
2015 |
|
U.S. dollars in thousands |
Reconciliation of Adjusted EBITDA to net
income: |
|
|
|
|
Adjusted EBITDA |
$ |
1,254 |
|
$ |
2,727 |
|
$ |
5,592 |
|
$ |
8,293 |
|
Accounting for joint venture |
|
(156 |
) |
|
(112 |
) |
|
(382 |
) |
|
(356 |
) |
Depreciation and amortization |
|
(686 |
) |
|
(600 |
) |
|
(1,996 |
) |
|
(1,680 |
) |
Business development related expenses |
|
(278 |
) |
|
|
(278 |
) |
|
Share-based compensation expenses |
|
(675 |
) |
|
(420 |
) |
|
(1,970 |
) |
|
(1,218 |
) |
Operating income (loss) |
|
(541 |
) |
|
1,595 |
|
|
966 |
|
|
5,039 |
|
Financial income (expenses) - net |
|
173 |
|
|
(7 |
) |
|
391 |
|
|
519 |
|
Income (loss) before taxes on income |
|
(368 |
) |
|
1,588 |
|
|
1,357 |
|
|
5,558 |
|
Taxes on income |
|
(84 |
) |
|
(121 |
) |
|
(337 |
) |
|
(285 |
) |
Share in profits of equity investee |
|
122 |
|
|
78 |
|
|
271 |
|
|
275 |
|
GAAP net income (loss) |
$ |
(330 |
) |
$ |
1,545 |
|
$ |
1,291 |
|
$ |
5,548 |
|
|
Three Months Ended September 30 |
Nine Months Ended September 30, |
|
2016 |
2015 |
2016 |
2015 |
|
U.S. dollars in thousands |
Reconciliation of Non-GAAP net income to GAAP net
income: |
|
|
|
|
Non-GAAP net income |
$ |
623 |
|
$ |
1,965 |
|
$ |
3,539 |
|
$ |
6,766 |
|
Business development related
expenses |
|
(278 |
) |
|
|
(278 |
) |
|
Share-based compensation
expenses |
|
(675 |
) |
|
(420 |
) |
|
(1,970 |
) |
|
(1,218 |
) |
GAAP net income (loss) |
$ |
(330 |
) |
$ |
1,545 |
|
$ |
1,291 |
|
$ |
5,548 |
|
|
|
|
|
Three Months Ended September
30, |
Nine Months Ended September 30, |
|
2016 |
2015 |
2016 |
2015 |
|
U.S. dollars |
Reconciliation of Non-GAAP diluted EPS to GAAP diluted
EPS: |
|
|
|
|
Non-GAAP diluted EPS |
$ |
0.03 |
|
$ |
0.08 |
|
$ |
0.15 |
|
$ |
0.29 |
|
Business development related
expenses |
|
(0.01 |
) |
|
|
(0.01 |
) |
|
Share-based compensation
expenses |
|
(0.03 |
) |
|
(0.01 |
) |
|
(0.09 |
) |
|
(0.05 |
) |
GAAP diluted EPS |
$ |
(0.01 |
) |
$ |
0.07 |
|
$ |
0.05 |
|
$ |
0.24 |
|
ENZYMOTEC
LTD. |
CONDENSED
CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME |
|
|
Three
Months Ended September 30, |
Nine
Months Ended September 30, |
|
2016 |
2015 |
2016 |
2015 |
|
U.S.
dollars in thousands (except per share data) |
NET REVENUES |
$ |
11,412 |
|
$ |
12,428 |
|
$ |
37,112 |
|
$ |
37,122 |
|
COST OF REVENUES * |
|
3,877 |
|
|
4,963 |
|
|
12,034 |
|
|
14,519 |
|
GROSS PROFIT |
|
7,535 |
|
|
7,465 |
|
|
25,078 |
|
|
22,603 |
|
OPERATING EXPENSES: |
|
|
|
|
Research and development – net
* |
|
1,866 |
|
|
1,463 |
|
|
5,568 |
|
|
4,352 |
|
Selling and marketing * |
|
4,312 |
|
|
2,654 |
|
|
13,506 |
|
|
7,765 |
|
General and administrative * |
|
1,898 |
|
|
1,753 |
|
|
5,038 |
|
|
5,447 |
|
Total operating expenses |
|
8,076 |
|
|
5,870 |
|
|
24,112 |
|
|
17,564 |
|
OPERATING INCOME (LOSS) |
|
(541 |
) |
|
1,595 |
|
|
966 |
|
|
5,039 |
|
FINANCIAL INCOME (EXPENSES) – net |
|
173 |
|
|
(7 |
) |
|
391 |
|
|
519 |
|
INCOME (LOSS) BEFORE TAXES ON INCOME |
|
(368 |
) |
|
1,588 |
|
|
1,357 |
|
|
5,558 |
|
TAXES ON INCOME |
|
(84 |
) |
|
(121 |
) |
|
(337 |
) |
|
(285 |
) |
SHARE IN PROFITS OF EQUITY INVESTEE |
|
122 |
|
|
78 |
|
|
271 |
|
|
275 |
|
NET INCOME (LOSS) |
$ |
(330 |
) |
$ |
1,545 |
|
$ |
1,291 |
|
$ |
5,548 |
|
OTHER COMPREHENSIVE INCOME (LOSS): |
|
|
|
|
Currency translation
adjustments |
$ |
(26 |
) |
$ |
(17 |
) |
$ |
(15 |
) |
$ |
(87 |
) |
Unrealized gain (loss) on
marketable securities |
|
(107 |
) |
|
7 |
|
|
130 |
|
|
21 |
|
Cash flow hedge |
|
66 |
|
|
(219 |
) |
|
7 |
|
|
(12 |
) |
Total comprehensive income
(loss) |
$ |
(397 |
) |
$ |
1,316 |
|
$ |
1,413 |
|
$ |
5,470 |
|
EARNINGS (LOSS) PER SHARE: |
|
|
|
|
Basic |
$ |
(0.01 |
) |
$ |
0.07 |
|
$ |
0.06 |
|
$ |
0.25 |
|
Diluted |
$ |
(0.01 |
) |
$ |
0.07 |
|
$ |
0.06 |
|
$ |
0.24 |
|
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES: |
|
|
|
|
Basic |
|
22,759,493 |
|
|
22,542,144 |
|
|
22,716,862 |
|
|
22,462,054 |
|
Diluted |
|
23,360,482 |
|
|
23,289,075 |
|
|
23,384,968 |
|
|
23,247,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* The
above items are inclusive of the following share-based compensation
expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
$ |
40 |
|
$ |
25 |
|
$ |
120 |
|
$ |
84 |
|
Research and development - net |
|
101 |
|
|
68 |
|
|
299 |
|
|
192 |
|
Selling and marketing |
|
216 |
|
|
90 |
|
|
643 |
|
|
274 |
|
General and administrative |
|
318 |
|
|
237 |
|
|
908 |
|
|
668 |
|
|
$ |
675 |
|
$ |
420 |
|
$ |
1,970 |
|
$ |
1,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ENZYMOTEC
LTD. |
CONDENSED
CONSOLIDATED UNAUDITED BALANCE SHEETS |
|
|
September 30 |
December 31 |
|
2016 |
2015 |
|
U.S.
dollars in thousands |
Assets |
|
|
CURRENT ASSETS: |
|
|
Cash and cash equivalents |
$ |
10,642 |
|
$ |
21,987 |
|
Short-term bank deposits and
marketable securities |
|
34,011 |
|
|
23,051 |
|
Accounts receivable: |
|
|
Trade |
|
12,697 |
|
|
14,956 |
|
Other |
|
2,025 |
|
|
2,358 |
|
Inventories |
|
28,496 |
|
|
21,815 |
|
Total current assets |
|
87,871 |
|
|
84,167 |
|
NON-CURRENT ASSETS: |
|
|
Investment in equity investee |
|
1,690 |
|
|
1,499 |
|
Marketable securities |
|
32,725 |
|
|
31,360 |
|
Intangibles, long-term deposits and
other |
|
991 |
|
|
1,116 |
|
Funds in respect of retirement
benefits obligation |
|
1,168 |
|
|
1,076 |
|
Total non-current assets |
|
36,574 |
|
|
35,051 |
|
PROPERTY, PLANT AND EQUIPMENT: |
|
|
Cost |
|
42,125 |
|
|
40,796 |
|
Less - accumulated depreciation and
amortization |
|
12,999 |
|
|
11,088 |
|
|
|
29,126 |
|
|
29,708 |
|
Total assets |
$ |
153,571 |
|
$ |
148,926 |
|
Liabilities and shareholders' equity |
|
|
CURRENT LIABILITIES: |
|
|
Accounts payable and accruals: |
|
|
Trade |
$ |
7,004 |
|
$ |
5,529 |
|
Other |
|
4,875 |
|
|
5,427 |
|
Total current liabilities |
|
11,879 |
|
|
10,956 |
|
LONG-TERM LIABILITY - |
|
|
Retirement benefits obligation |
|
1,449 |
|
|
1,253 |
|
Total liabilities |
|
13,328 |
|
|
12,209 |
|
SHAREHOLDERS' EQUITY: |
|
|
Ordinary shares |
|
58 |
|
|
58 |
|
Additional paid-in capital |
|
126,356 |
|
|
124,243 |
|
Accumulated other comprehensive
loss |
|
(349 |
) |
|
(471 |
) |
Retained earnings |
|
14,178 |
|
|
12,887 |
|
Total shareholders' equity |
|
140,243 |
|
|
136,717 |
|
Total liabilities and shareholders'
equity |
$ |
153,571 |
|
$ |
148,926 |
|
|
ENZYMOTEC
LTD. |
CONDENSED
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS |
|
|
Nine Months
Ended September 30 |
|
2016 |
2015 |
|
U.S.
dollars in thousands |
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
Net Income |
$ |
1,291 |
|
$ |
5,548 |
|
Adjustments required to reflect
cash flows from operations: |
|
|
Depreciation and amortization |
|
1,996 |
|
|
1,680 |
|
Share in profits of equity
investee |
|
(271 |
) |
|
(275 |
) |
Share-based compensation
expense |
|
1,970 |
|
|
1,218 |
|
Loss from sale of property, plant
and equipment |
|
|
16 |
|
Change in inventories |
|
(6,681 |
) |
|
37 |
|
Change in accounts receivable and
other |
|
2,616 |
|
|
432 |
|
Change in accounts payable and
accruals |
|
1,052 |
|
|
1,286 |
|
Change in other non-current
assets |
|
(14 |
) |
|
(256 |
) |
Change in retirement benefits
obligation |
|
152 |
|
|
139 |
|
Net cash provided by operating
activities |
|
2,111 |
|
|
9,825 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
Purchase of property, plant and
equipment |
|
(1,459 |
) |
|
(2,218 |
) |
Investment in bank deposits and
marketable securities |
|
(27,051 |
) |
|
2,376 |
|
Long-term deposits |
|
41 |
|
|
(25 |
) |
Proceeds from sale of property,
plant and equipment |
|
|
11 |
|
Proceeds from sale of marketable
securities |
|
14,854 |
|
|
5,489 |
|
Proceeds from disposal of an equity
investee |
|
64 |
|
|
Change in funds in respect of
retirement benefits obligation |
|
(48 |
) |
|
(111 |
) |
Net cash provided by (used in)
investing activities |
|
(13,599 |
) |
|
5,522 |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
Exercise of options by
employees |
|
143 |
|
|
535 |
|
Net cash provided by financing
activities |
|
143 |
|
|
535 |
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS |
|
(11,345 |
) |
|
15,882 |
|
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD |
|
21,987 |
|
|
10,315 |
|
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF
PERIOD |
$ |
10,642 |
|
$ |
26,197 |
|
Company Contact
Enzymotec Ltd.
Oren Bryan
Chief Financial Officer
Phone: +972747177177
ir@enzymotec.com
Investor Relations Contact (U.S.)
The Ruth Group
Tram Bui / Lee Roth
Phone: 646-536-7035 / 7012
tbui@theruthgroup.com
lroth@theruthgroup.com
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