ENZY

Enzymotec Ltd. (ENZY)

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Enzymotec Ltd. (ENZY)

Q1 2014 Earnings Conference Call

May 14, 2014 08:30 am ET

Executives

Ariel Katz – President & Chief Executive Officer

Oren Bryan – Vice President & Chief Financial Officer

John Mills – ICR (IR)

Analysts

Scott Van Winkle – Canaccord Genuity

Brian Spillane – Bank of America / Merrill Lynch

John Bumgarner – Wells Fargo

Laurence Alexander – Jefferies & Co.

Rommel Dionisio – Wedbush Securities

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Enzymotec Q1 2014 Earnings Conference Call. (Operator instructions.) As a reminder, this conference call is being recorded. I would now like to turn the call over to John Mills. Sir, you may begin.

John Mills

Great, thank you. Good morning, everyone. Thank you for joining us today to review Enzymotec’s Financial Results for Q1 Ended March 31, 2014. On the call today representing Enzymotec are Dr. Ariel Katz, President and Chief Executive Officer, and Oren Bryan, Vice President and Chief Financial Officer.

Dr. Katz will star the call with a review of the key operating and financial achievements for the quarter and provide an update on their growth strategy. Then Mr. Bryan will discuss the Q1 2014 financial performance as well as the 2014 outlook. Finally the company will open the call for your questions.

Before we begin we’d like to remind you that on today’s call management may make forward-looking statements. These statements may include management’s belief’s and expectations about the company’s future results. Please be aware they are based on the best available information to management and assumptions that management believes are reasonable as of today’s date. Such statements are not intended to be a representation of future results and are subject to risks and uncertainties.

Future results may differ materially from management’s current expectations. We refer all of you to Enzymotec’s Q1 Earnings press release and Annual Report on Form 20(f) for more detailed information on the risk facts and uncertainties that have a direct bearing on the company’s operating results, performance and financial conditions.

On the call today management will also discuss certain non-GAAP financial measures which are used as supplemental measures of performance. The company believes these measures provide useful information to investors in evaluating their operations period-over-period. For each non-GAAP financial measure referenced on this call we have included a reconciliation of the non-GAAP financial measure to the most directly-comparable GAAP financial measure in the company’s press release.

Please note that non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for Enzymotec’s financial results prepared in accordance with GAAP.

With that said I’ll now turn the call over to Dr. Ariel Katz. Go ahead, Ariel.

Ariel Katz

Thank you and welcome everyone to our Q1 2014 Earnings Conference Call. We are pleased with our start of 2014. Our team continues to execute on our strategic growth initiatives and leverage our core strength including infant nutrition, health and wellness., to generate solid Q1 net revenues growth, strong margin expansion and robust earnings.

We generated record Q1 operating cash and in January this year we repaid our long-term loan in full, and as a result we are free of interest-bearing debt. Specifically for Q1 we generated solid gross margin expansion of over 1400 basis points to 61.6% driven by a revenues increase of 43.3% in our Nutrition segment and 47.6% for our VAYA Pharma segment.

Net income was up 180% to $5.1 million and adjusted EBITDA grew 190.3% to $6.5 million. Oren Bryan, our CFO, will review the financials in greater details shortly.

We believe that we are well positioned for future profitability and growth as we continue to expand our customer base across our Nutrition and VAYA Pharma segments and further leverage our global infrastructure. Consumers globally are increasingly using our innovative proprietary lipid-based products to address their health and wellness needs.

Focusing on our two reportable business segments for a moment, our Nutrition segment and VAYA Pharma segment, both offer a variety of products that leverage our lipid-related expertise. In Q1 2014 the Nutrition and VAYA Pharma segment represented 94.5% and 5.5% of our total revenue respectively. Enzymotec’s success continues to be driven by our [class] of proprietary lipids technology and competitive advantage where created.

We remain focused on strategically working on clinical trials and gaining patents in key markets. We currently have [eight clinical trials] in process across various stages and additional clinical activities. This approach provides us with a key competitive advantage as we have accelerated our growth on the global level.

In addition as many of you know Enzymotec has over 150 patents and patent applications pending worldwide, including the filing of new patent applications in Q1. Our team will continue to expand our clinical validation over the coming years, reinforcing our current products and formulary indications. The potential market for both Nutrition and VAYA Pharma products is large and growing, and we will continue to invest in innovation to bring the highest quality nutritional ingredients to our customers.

Our Scientific Team remains committed to extending our intellectual property and delivering value to our customers around the world. In our Nutrition segment, customers of our infant nutrition product include some of the leading providers of infant formula in the world, and in Q1 we made progress with key new customers. INFAT, which is sold and marketed by Advanced Lipids – our joint venture with AAK – has also been achieving rapid penetration in the Chinese and other Asian markets. And we believe that we have a significant opportunity in other developing markets and developed markets such as North America and Europe.

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