Embrex Reports Full Year and Fourth Quarter 2003 Financial Results

Embrex Reports Full Year and Fourth Quarter 2003 Financial Results 


RESEARCH TRIANGLE PARK, N.C., March 15  /PRNewswire-FirstCall/ -- Embrex(R),
Inc., The In Ovo Company(SM),  today announced financial results for the full
year and fourth quarter ended December 31, 2003.

  2003 Financial Highlights
   * Full-year revenues of $46.0 million, up 2% over the same period 2002
   * Full-year net income of $7.6 million, up 6% over the same period 2002,
     which includes the litigation settlement from Fort Dodge Animal Health
     and Gender Sort system acquisition write down
   * Fourth-quarter 2003 revenues of $11.5 million, unchanged from fourth
     quarter 2002
   * Fourth-quarter 2003 net loss of ($0.2) million, which includes Gender
     Sort system acquisition and write down of $2.3 million, compared to a
     net income of $1.4 million for the same period in 2002

  2003 Business Highlights
   * Embrex's Newplex(TM) in ovo Newcastle disease vaccine received USDA
     approval
   * Four new patents broaden Embrex portfolio for Inovocox(TM) in ovo
     coccidiosis vaccine and Gender Sort system
   * Construction substantially completed on Embrex Poultry Heath biological
     manufacturing facility for the Company's novel Inovocox(TM) in ovo
coccidiosis vaccine
   * Embrex obtains $5.0 million litigation settlement from Fort Dodge
     Animal Health


                           Financial Summary Table
                                 Embrex, Inc.
               Condensed Consolidated Statements of Operations
                   (In thousands except per share amounts)

                           Three Months (unaudited)       Twelve Months
                              Ended December 31          Ended December 31
                      2003         2002          2003         2002

  Revenues                 $11,507      $11,465       $46,025      $45,325
  Cost of revenue            4,892        4,606        18,914       17,558
  Gross profit               6,615        6,859   27,111       27,767
  Operating expenses         7,546        5,181        22,491       19,269
  Other income(expense)        (80)          (3)        3,764          122
  Income (loss)
   before taxes             (1,011)       1,675         8,384 8,620
  Income tax expense
   (benefit)                  (814)         267           773        1,449
  Net income (loss)          $(197)      $1,408        $7,611       $7,171

  Net income (loss) per
   share:
    Basic                   ($0.02)       $0.17         $0.94        $0.88
    Diluted                 ($0.02)       $0.16         $0.91        $0.82
  No. of shares of
   Common Stock used in
   per share calculation:
    Basic                    8,117        8,153         8,119       8,116
    Diluted                  8,482        8,525         8,369        8,692




Fourth-quarter total revenues remained unchanged at $11.5 million for both 2003
and 2002.  The Company's fourth-quarter device revenues of $10.7 million
increased $0.5million over 2002 device revenues of $10.2 million.  Revenues
from product sales decreased $0.3 million from $0.8 million in 2002 to $0.5
million in 2003, partially offsetting this gain.  In addition, other revenues
derived from grant and miscellaneousrevenue decreased from $0.4 million in the
fourth quarter of 2002 to $0.2 million for the same period of 2003.  As noted in
prior quarters, device sales (included in device revenue) and other revenue such
as grants or outside funding vary from quarter-to-quarter.

Total operating expenses were $7.5 million for the fourth-quarter 2003 compared
to $5.2 million for the same period in 2002.  Research and development expenses
increased $2.4 million, primarily due to expenses of $2.3 million associated
with the write down of the Gender Sort system purchased from Advanced
Automation, Inc.  Other expense increases were not significant.

Fourth-quarter loss before taxes was ($1.0) million, or $2.7 million less than
2002 income before taxes of $1.7 million. This loss is primarily due to the
Company's write down of the $2.3 million purchase of the Gender Sort system from
Advanced Automation. As a result of the loss before taxes of $1.0 million,
estimated income taxes for the fourth quarter of 2003 were reduced. In addition
the Company's evaluation of the year end deferred tax asset resulted in a
significant increase to the deferred tax asset and a reduction in the provision
for income taxes. Together the above items resulted in a $1.0 million net
reduction in income tax compared to fourth quarter 2002 income tax. 
Fourth-quarter net loss was ($0.2) million, a decrease of $1.6 million in
comparison to net income of $1.4 million for the same period in 2002. Diluted
earnings per share for the fourth-quarter were ($0.02) per share on 8.5 million
weighted average shares outstanding, compared to diluted earnings of $0.16 per
share on 8.5 million weighted average shares outstanding for the same period in
2002.

Fourth-quarter 2003 gross margin decreased from 60% to 57% reported in the
comparable quarter of 2002 primarily due to Advanced Technology Program (ATP)
grant funding with no associated cost of revenue received during the fourth
quarter of 2002 that did not recur in 2003.

The Company uses earningsbefore interest, taxes, depreciation and amortization
(EBITDA) as an additional performance measure. The Company believes that EBITDA,
which is a non-GAAP financial measure, provides investors with supplemental
information about the Company's financialperformance.  In compliance with the
Securities and Exchange Commission's Regulation G, the Company has provided a
reconciliation of EBITDA to GAAP net income, following the financial statements
below. EBITDA was $0.4 million for the fourth quarter of 2003, a decrease of 87%
or $2.7 million compared to the same period in 2002.  It includes a $2.3 million
write down of the Gender Sort system purchased from Advanced Automation.

Results of Full-Year 2003

For the full-year ended December 31, 2003, total revenues were $46.0 million, a
2% increase over total revenues of $45.3 million for the full-year 2002. This is
primarily attributable to an 8%, or $3.3 million increase in device revenues
which was offset by product sales that declined by $1.1 million and other
revenue from grants and research and development funding that decreased by $1.5
million year over year.

Full-year 2003 gross margin was 59%, down from 61% in 2002 primarily due to
lower ATP funding and 2002 funding from Cobb-Vantress that did not recur in
2003, each of which had no associated cost of revenue.

Operating expenses were up 17% to $22.5 million in 2003 compared to $19.3
million in 2002.  Operating expenses for 2003 include a $2.3 million write down
for the Gender Sort system purchased from Advanced Automation.

General and administrative (G&A) expenses were $7.1 million in 2003, up 8% from
$6.6 million in 2002. The increase in G&A expenses from 2002 to 2003 was
primarily due to increased expenses related to legal and accounting services
incurred to comply with the Sarbanes-Oxley Act; additional facilities support;
the Company's Inovocox(TM) facility under construction; increased insurance
premiums due to increased property and product liability coverage as well as an
overall increase in premium rates for the 2003 insurance market; and staff-
related increases in support of the business.

Sales and marketing expenses totaled $2.8 million in 2003, an increase of 12%
over 2002 expenses of $2.5 million.  The increase from 2002 to 2003 is primarily
due to increased sales tax assessments, increased sales and marketing efforts
and staff-related increases to support the business.

R&D expenses were $12.5 million in 2003 compared to $10.2 million in 2002. The
increase from 2002 to 2003 is primarily due to the $2.3 million write down of
the Gender Sort system purchased from Advanced Automation.

Total other income was $3.8 million in 2003, a $3.6 million increase over 2002.
This is primarily attributable to the $5.0 million Fort Dodge litigation
settlement in June 2003, which contributed $3.7 million of other income to the
second quarter of 2003 after accounting for legal expenses.

Income before taxes for 2003 was $8.4 million, or $0.2 million less than 2002
income before taxes of $8.6 million.  Income taxes totaled $0.8 million for
2003, a $0.7 million decrease in comparison to 2002.  The effective tax rate for
2003 was 9% in comparison to 17% in 2002.  The lower effective tax rate for 2003
was the result of the deferred tax asset evaluation that increased the deferred
tax asset and lowered the recorded income tax provision expense.  Due to net
operating loss carry forwards in Embrex Europe, Ltd., which offset the income
tax effect of the Fort Dodge settlement, there was no income tax provision
recorded for the settlement in 2003. Consolidated net income for 2003 increased
to $7.6 million, 6% higher than 2002 net income of $7.2 million. The increase in
2003 net income compared to 2002 was primarily due to the $3.7 million
settlement of the Company's litigation with Fort Dodge net of legal expenses,
offset by the $2.3 million write down of the Gender Sort system. Net income per
common share was $0.91 for 2003 based on 8.4 million weighted-average diluted
shares outstanding, compared to net income of $0.82 per share based on 8.7
million weighted average diluted shares outstanding in 2002.

EBITDA increased 1% to $13.7 million for 2003 from $13.6 million during the same
period of 2002.  At December 31, 2003, cash and cash equivalents totaling $9.6
million were $1.6 million higher than the $8.0 million on hand at December 31,
2002.  This was principally due to cash received from financing the construction
of the Embrex Poultry Health facility and a favorable currency translation
adjustment, offset by a $2.1 million decrease in cash provided by operations and
an $8.2 million increase in cash used for investing in capital expenditures. 
EBITDA includes the $3.7 million settlement of the Company's litigation with
Fort Dodge net of legal expenses, and the $2.3 million purchase and write down
of the Gender Sort system from Advanced Automation.

"The highlights at the beginning of this release demonstrate that Embrex is
poised to enter a new era in the field of in ovo technology.  We broadened our
patent base, constructed our first vaccine manufacturing facility, and modestly
grew our Inovoject(R) system and other device revenues in the face of global
industry challenges and the appearance of limited competitive activity," said
Randall L. Marcuson, President and Chief Executive Officer of Embrex. 
"Approximately a year ago, despite recognizing we would face certain industry
challenges, we decided to continue investing in key research and development
programs. Today, we believe we made the right decision. Our Inovocox(TM) vaccine
program remained on track and on budget while advancements in our Gender Sort
program lead us to believe we will have sampling and assay techniques that
improve our chances for application to a broader market that includes the
broiler industry - despite a delay in the overall project.  As we continue to
move these projects forward, 2004 will be another investment year for us.  While
we anticipate modest growth in the near term, we continue to believe these
projects represent significant potential for the company."

Embrex's management, led by President and CEO Randall L. Marcuson, will discuss
fourth-quarter and full-year financial results and 2004 outlook and plans in a
conferencecall on March 17 at 11:00 AM ET. To join the conference call, dial
[phone] (domestic and Canada), or [phone] (international),
identify Randall Marcuson as the conference leader, and provide conference
identification number 5950486.

The live conference call will be publicly available online at
http://www.embrex.com/ . Click the Investor Info button and then on the Live
Webcast icon. A telephone replay will be available from 2 p.m. ET March 17 to
midnight ET March 31, by dialing 800-642-1687 (domestic and Canada), or (706)
645-9291 (international), conference ID 5950486.  A replay of the call can also
be accessed via the company's website using the same instructions as above for
the live webcast.

About Embrex

Embrex, Inc., The In OvoCompany(SM), headquartered in Research Triangle Park,
NC, is an international agricultural biotechnology company engaged in the
development of innovative in ovo (in the egg) solutions that meet the needs of
today's global poultry industry.  The company's unique integration of several
scientific and engineering disciplines enables it to be the leading provider of
in ovo, value-added solutions with its automated injection and detection devices
as well as its select vaccines.  For additional information, visit the company
web site at http://www.embrex.com/ .

The tables attached to this release are an integral part of this release. This
release contains forward-looking statements, including statements with respect
to future financial results, products, services, and markets. These statements
involve risks and uncertainties that could cause actual results to differ
materially. Risks include without limitation the degree of growth in the poultry
industry in the U.S. and globally, possible decreases inproduction by our
customers, market acceptance and cost of expansion in new geographic markets and
with new products, including the Company's ability to penetrate new markets and
the degree of market acceptance of new products, the complete commercial
development of potential future products on a cost effective basis, including
with respect to Gender Sort and Inovocox, and the ability to obtain regulatory
approval of products. Such approval is dependent upon a number of factors, such
as results of trials, the discretion of regulatory officials, and potential
changes in regulations. Additional information on these risks and other factors,
which could affect the Company's financial results, is included in the Company's
Forms 10-K, 10-Q and other filings with the Securities and Exchange Commission.

Embrex(R), Bursaplex(R), Newplex(TM), Inovoject(R), Inovocox(TM), Egg
Remover(R), Vaccine Saver(R), and The In Ovo Company(SM) are trademarks of
Embrex, Inc.

Financial Tables Follow

Please see Embrex'sForm 10-K filed with the SEC for detailed GAAP financial
statements.

                                 Embrex, Inc.
                    Consolidated Statements of Operations
                   (In thousands except per share amounts)

                  Three Months(unaudited)        Twelve Months
                             Ended December 31,         Ended December 31,
                             2003         2002          2003         2002

  Revenues
     Device revenues       $10,750    $10,206       $43,458      $40,160
     Product sales             519          764         1,970        3,079
     Other revenues            238          495           597        2,086
  Total revenues            11,507       11,465        46,025     45,325

  Cost of revenue            4,892        4,606        18,914       17,558

  Gross profit               6,615        6,859        27,111       27,767
  Operating expenses:
     General &
      administrative         1,996        1,911        7,119        6,571
     Sales & marketing         675          703         2,832        2,536
     Research &
      development            4,875        2,567        12,540       10,162
  Total operating
   expenses                  7,546        5,181  22,491       19,269

  Operating profit (loss)     (931)       1,678         4,620        8,498

  Other income (expense)
     Interest income            32           66           163          225
     Interest expense           10          (49)  20          (62)
     Foreign currency
      gain (loss)              (14)         (20)          - 0 -        (41)
     Other income
      (expense)                (87)         - 0 -       3,621          - 0 -
  Total other income
   (expense) (79)          (3)        3,764          122

  Income (loss)
   before taxes             (1,010)       1,675         8,384        8,620

  Income tax expense
   (benefit)                  (813)         267           773        1,449

 Net income (loss)          ($197)      $1,408        $7,611       $7,171
  Net income per share:
  Basic                     ($0.02)       $0.17         $0.94        $0.88
  Diluted                   ($0.02)       $0.16         $0.91        $0.82

  No. of shares of
  Common Stock used
  in per share
  calculation:
  Basic                      8,117        8,153         8,119        8,116
  Diluted                    8,482        8,525         8,369        8,692

  EBITDA                      $392   $3,082       $13,724      $13,560


                    Condensed Consolidated Balance Sheets

                               (In thousands)

                                         December 31,           December 31,
                              2003                  2002

  ASSETS
    Current assets                          $23,367                $18,808
    Non-current assets                       36,350                 23,205
  Total assets                              $59,717                $42,013

  LIABILITIES AND
  SHAREHOLDERS' EQUITY
    Current liabilities                      $7,621                 $4,803
    Non-current liabilities                   6,404                     46
    Shareholders' equity            45,692                 37,164
  Total liabilities and
   shareholders' equity                     $59,717                $42,013


               Condensed Consolidated Statements of Cash Flows
                                (In thousands)

  Twelve Months Ended
                                                        December 30
                                                  2003              2002

  Net cash provided by operating  activities    $9,783              11,853
  Net cash used in Investing Activities        (16,603)             (8,403)
  Net cash provided by financing activities      7,459               1,179
  Increase in cash and cash equivalents            639              4,629
  Currency translation adjustments                 951                (497)
  Cash and cash equivalents at
   beginning of period                           8,039               3,907
  Cash and cash equivalents at end  of period   $8,039          $9,629


                 GAAP Reconciliation of Net Income to EBITDA
                               (In thousands)

                                  Three Months            Twelve Months
                               Ended December 30        Ended December 31
                                2003       2002         2003         2002
  Net income (loss)            ($197)     $1,408       $7,611       $7,171
  Add back:
  Depreciation and
   amortization                1,392       1,361        5,320        4,878
  Interest expense                10         (49)          20           62
  Tax expense                   (813)        267          773        1,449
  (benefit)
  EBITDA                        $392      $3,082      $13,724      $13,560

   CONTACT:  Ellen T. Moore
             Vice President, Investor Relations
             & Corporate Communications
             [phone]


DATASOURCE: Embrex, Inc.



CONTACT:  Ellen T. Moore, Vice President, Investor Relations & Corporate

Communications of Embrex, Inc., [phone]



Web site:  http://www.embrex.com/

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