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Enzymotec Reports Second Quarter 2014 Unaudited Financial Results

8/5/2014 8:05:30 AM

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MIGDAL HA'EMEQ, Israel, Aug. 5, 2014 (GLOBE NEWSWIRE) -- Enzymotec Ltd. (Nasdaq:ENZY), a developer, manufacturer and marketer of innovative bio-active lipid ingredients, today reported financial results for the second quarter ended June 30, 2014.

Second Quarter 2014 Financial Highlights, Compared to the Same Quarter Last Year

  • Second quarter net revenues (equity method) decreased 39.8% to $9.0 million.
  • Second quarter net revenues (proportionate consolidation method) decreased 34.4% to $11.5 million.
  • Second quarter gross margin (equity method) increased over 1,500 basis points to 62.0% from 46.5%.
  • Second quarter net income decreased to $0.4 million.
  • Second quarter non-GAAP net income decreased to $0.5 million*.
  • Second quarter adjusted EBITDA decreased to $1.2 million*.

* A reconciliation of Non-GAAP financial measures to GAAP Financial measures is set forth below.

Recent Business Highlights and Other Updates:

  • Published results from a clinical study on crying reduction following usage of INFAT® in Infants in the peer-reviewed journal "BMC Pediatrics." The clinical study evaluated the effect of INFAT® usage on crying in healthy infants. The results of the study indicate significantly lower crying duration, primarily during afternoon and evening hours, related to the formula with INFAT® compared to a standard vegetable oil control infant formula. INFAT® is sold and marketed by Advanced Lipids, a joint venture of AAK and Enzymotec.
  • Presented new findings regarding positive effects of INFAT®, at the European Society for Pediatric Gastroenterology, Hepatology and Nutrition (ESPGHAN) Conference in Jerusalem, Israel. The study was the first to test the effect of a commercial infant formula containing INFAT® and prebiotics compared to the control formula containing standard vegetable oil and prebiotics or breast-fed infants on the well-being of Chinese term infants. The study was conducted in medical centers across China in collaboration with Biostime, a leading infant formula company in China. The study demonstrated significant benefits of INFAT®. Specifically, similar to breastfeeding, it increases infant comfort by reducing crying and enhances fat and nutrient absorption during the first weeks of life compared to the control formula.
  • Launched Omega PC™, a new, premium fish oil-based omega-3 product. Omega PC™ is a wild, cold water fish extract, containing omega-3 fatty acids bound to phospholipids (PL) and triglycerides (TG).
  • As previously disclosed, AarhusKarlshamn AB, or AAK, a Sweden-based, global producer of specialty oils that is the Company's joint venture partner in Advanced Lipids AB, submitted a request for arbitration against the Company seeking a declaration that the Company breached the confidentiality provisions of the agreement by disclosing confidential information of the joint venture in its registration statement for its IPO, as well as a declaration regarding the correct interpretation of certain provisions of the joint venture agreement. The Company recently submitted its response to AAK's arbitration request rejecting AAK's allegations and including a counter claim, pursuant to which the Company seeks monetary damages from AAK due to various breaches of the joint venture agreement by AAK.

"In the second quarter our business experienced operational challenges based on external market dynamics which hindered our financial performance," stated Dr. Ariel Katz, Enzymotec's President and Chief Executive Officer. "While we expected these headwinds in the quarter, particularly related to recent regulatory changes in the Chinese infant formula market and weakness in the U.S. and Australian Omega-3 industry, their overall impact was greater than anticipated and will continue to adversely impact Enzymotec for at least the next two quarters."

Dr. Katz continued, "We will continue to manage the controllable aspects of our business. We remain confident that our proprietary lipids-based technology focused on consumers' needs, our solid reputation in the large and growing nutrition markets, and our innovative product portfolio are key competitive strengths that will ultimately lead to greater adoption of our nutrition and VAYA Pharma products and, in turn, position Enzymotec for profitable growth long-term."

Second Quarter 2014 Results

For the second quarter of 2014, based on the proportionate consolidation method, net revenues decreased 34.4% to $11.5 million from $17.5 million for the second quarter of 2013.For the second quarter of 2014, based on the equity method of accounting, net revenues decreased 39.8% to $9.0 million from $14.9 million for the second quarter of 2013. The decrease was mainly due to a decrease of $5.5 million in the krill sales volume, driven primarily by decreased sales volume in the United States and in Australia, particularly as a result of a decrease in sales of premium omega-3 products in those markets.

Gross margin (equity method) for the second quarter of 2014 increased over 1,500 basis points to 62.0% from 46.5% for the second quarter of 2013. Over 800 basis points of the increase in gross profit margin were due to the operation of the new extraction facility and other improvements in production efficiency and approximately 700 basis points resulted from changes in the mix of products sold, as net revenues in the three months ended June 30, 2014 reflected an increase in the volume of sales of InFat which when accounted for the equity method carry a higher gross margin, and an increase in sales of VAYA Pharma products, which carry a higher gross margin than some of the Company's other products.

Selling and marketing expenses increased to $1.9 million from $1.7 million in the second quarter of 2013, primarily as a result of building the sales infrastructure of VAYA Pharma USA in order to expand sales to additional states.

General and administrative expenses increased to $1.8 million from $1.3 million in the second quarter of 2013, primarily due to public company expenses and patent-related legal expenses.

Net income for the second quarter of 2014 decreased to $0.4 million (or $0.02 per diluted share, based on a weighted average of 23.2 million shares) from $2.3 million (or $0.12 per diluted share, based on a weighted average of 3.8 million shares) for the second quarter last year.

Adjusted EBITDA for the second quarter of 2014 decreased to $1.2 million from $2.9 million for the second quarter of 2013. A reconciliation of adjusted EBITDA to GAAP net income is set forth below.

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