Embrex Reports Third Quarter 2004 Financial Results

Embrex Reports Third Quarter 2004 Financial Results 


RESEARCH TRIANGLE PARK, N.C., Nov. 2  /PRNewswire-FirstCall/ -- Embrex(R),
Inc., The In Ovo Company(R), (NASDAQ:EMBX) today announced financial results
for the third quarter ended September 30, 2004.

  Highlights
   * Third quarter 2004 revenues up 11% or $1.3 million over the same period
     in 2003
   * Third quarter 2004 gross profit increased 9% compared to the similar
     period in 2003
   * Total revenues for first nine-months 2004 increased $1.9 million to
     $36.4 million or 6% over first nine-months of 2003
   * Device revenues for the first nine-months of 2004 increased 5%, or
     $1.8 million, compared to same period in 2003
   * Other income decreased $3.7 million from the first nine months of 2003,
     primarily attributable to the $5.0 million financial settlement less
     legal expenses of $1.3 million associated with Fort Dodge Animal Health
     in the first nine months of 2003
   * Effective tax rate 44% for the first nine months of 2004 and 50% for
     third quarter of 2004


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

                                    Three Months           Nine Months
                                 Ended September 30     Ended September 30
                                   2004      2003         2004      2003

  Revenues                        12,765    11,507       36,448    34,519
  Cost of revenues                 5,132     4,536       14,742    14,023
  Gross profit                     7,633     6,971       21,706    20,496
  Operating expenses               6,112     5,279       17,052    14,946
  Other income (expense)              18       (45)         148     3,844
  Income before income taxes       1,539     1,647        4,802     9,394
  Income tax expense (benefit)       769    (1,001)       2,113     1,586
  Net income                        $770    $2,648       $2,689    $7,808
  Net income per share of
   Common Stock:
    Basic                          $0.10     $0.32        $0.34     $0.96
    Diluted                        $0.09     $0.32        $0.32     $0.93
  No. of shares
  used in per share calculation:
    Basic                          7,919     8,159        7,969     8,151
    Diluted                        8,290     8,398        8,313     8,358

  Results for Third Quarter 2004


For the quarter ended September 30, 2004, consolidated revenues were $12.8
million, an 11% increase compared to consolidated revenues of $11.5 million for
the third quarter of 2003.

Product sales increased $0.3 million, or 80%, in the third quarter 2004
compared to the same period in 2003. Third quarter 2004 device lease fees, a
component of device revenues, generated 11% or $1.2 million more than the third
quarter of 2003. These recurring fees generally contribute more than 90% of
device revenues. Device revenues also include device sales, which tend to be
sporadic in nature and which decreased $0.3 million in the third quarter of
2004 compared to the third quarter of 2003. Overall, device revenues totaled
$11.9 million for the third quarter of 2004 compared to $11.0 million for the
same period in 2003, representing an 8% increase year over year.

Third quarter 2004 gross profit was $7.6 million, up $0.7 million compared to
the same period a year ago. This is primarily due to an improvement in Embrex's
product mix.

Operating expenses were up $0.8 million, or 16%, to $6.1 million in the third
quarter of 2004 compared to $5.3 million during the same period in 2003
primarily due to increases in general and administrative ("G&A") expenses.

G&A expenses were $2.6 million for the third quarter of 2004, up $0.8 million
or 41% compared to the same period of 2003. The increase in G&A expenses from
2003 was primarily due to increases in patent-related legal expenses formerly
reflected in R&D.  Additionally, increases in staff-related expenses driven by
the Company's growth, start-up costs for Embrex Poultry Health, higher
insurance premiums due to increased insurance coverage, and expenses related to
the implementation of changes to internal controls for Sarbanes-Oxley (SOX)
compliance contributed to the G&A increase as well.

Third quarter Sales & Marketing operating expenses remained essentially
unchanged at $0.7 million from 2003 to 2004.  Research and development ("R&D")
expenses remained nearly the same at $2.8 million for both the third quarter of
2003 and 2004.  Embrex continues to manage its R&D effort to leverage its
"know-how," patent position, market presence, and expenditures.

Income taxes totaled $0.8 million for third quarter 2004, a $1.8 million
increase over the same period in 2003 with an effective tax rate of 50% for
2004 third quarter.  This increase was primarily due to the previously reported
income tax adjustment in the third quarter of 2003 related to the Fort Dodge
settlement.  This adjustment was made following a tax review and had the effect
of reducing income taxes for the third quarter of 2003 by $1.3 million,
resulting in an income tax benefit in the third quarter of 2003. Additionally,
foreign withholding taxes and losses in certain international operations are
contributing to the higher effective tax rate.

Consolidated net income for the third quarter 2004 decreased to $0.8 million,
71% lower than 2003 third quarter net income of $2.6 million. Diluted earnings
per share were $0.09 for third quarter 2004 versus $0.32 for the same period in
2003. This decrease in net income is primarily attributable to the previously
reported income tax adjustment in the third quarter 2003 related to the Fort
Dodge settlement that increased net income for the third quarter of 2003 by
$1.3 million.  As discussed above, operating expense increases of $0.8 million
in third quarter 2004 as compared to the same period in 2003 contributed to the
decrease in net income as well.

Results of First Nine-months of 2004

Consolidated revenues totaled $36.4 million for the first nine months of 2004,
up 6% over the same period revenues of $34.5 million in 2003. Device revenues
were $34.5 million for the first nine months of 2004, an increase of 5% over
2003 first nine months revenues of $32.7 million. Most of the device revenue
increase was attributable to an 8%, or $2.4 million, increase in recurring
device lease fees. The device lease fee revenue increase was partially offset
by a $0.6 million decrease in device sales. A 7% increase in product revenue,
consisting primarily of Bursaplex(R) sales, also contributed to the increase in
consolidated revenues.  Gross profit for the first nine months of 2004 was
$21.7 million, a 6% increase over gross profit of $20.5 million for the same
period in 2003.

Consolidated gross margin for the first nine months of 2004 increased from 59%
in 2003 to 60% for the same period in 2004.

Consolidated operating expenses amounted to $17.1 million for the first nine
months of 2004 versus $14.9 million for the first nine months of 2003. G&A
expenses were $2.4 million higher during the first nine months of 2004 due
primarily to a $0.7 million increase in legal fees.  This increase was caused
by the second quarter 2003 reclassification of $1.2 million of Fort Dodge
litigation fees from G&A operating expense to "other income" in the "other
income (expense)" section of the statement of operations.  The reclassification
matched the cost of the litigation with the $5.0 million settlement received
from Fort Dodge.  The remaining $1.7 million increase is due to several other
factors, including increased accounting fees related primarily to
implementation of changes to internal controls for compliance with the
Sarbanes-Oxley Act, additional staff-related and software expenses supporting
the business and its growth, and the start-up of Embrex Poultry Health, higher
premiums due to increased insurance coverage, and additional property taxes
related to the Embrex Poultry Health facility.  Patent-related legal expenses
previously recorded as R&D expense also contributed to the increase in G&A
expenses, as well as the termination in 2003 of a federal Advanced Technology
Program (ATP) grant, which had absorbed a portion of G&A expenses as overhead. 
2003 Sales and Marketing expenses decreased $0.1 million from $2.2 million in
the first nine months of 2003 to $2.1 million for the same period of 2004. 
This decrease is mainly due to sales tax assessments that occurred in the first
nine months of 2003 that did not recur in 2004.  Research and development
expenses decreased $0.1 million as well, to $7.5 million for the first nine
months of 2004.

The effective tax rate of 17% during the first nine months of 2003 increased to
44% for the first nine months of 2004.  The increase in the effective tax rate
is primarily due to the recognition of deferred tax assets in 2003. 
Additionally, foreign withholding taxes and losses in certain international
operations are contributing to the higher effective tax rate. Other income
decreased $3.8 million for the first nine months of 2003 to $0.1 million for
the same period of 2004, primarily attributable to the $5.0 million financial
settlement less legal expenses of $1.2 million associated with Fort Dodge in
the first nine months of 2003. This resulted in a net income of $7.8 million
for the first nine months of 2003, which decreased 66% to $2.7 million for the
same period in 2004. Diluted net income per common share was $0.32 for the
first nine months of 2004 based on 8.3 million average shares outstanding,
compared to diluted net income per common share of $0.93 based on 8.4 million
average shares outstanding in the first nine months of 2003.  The 2003 net
income includes $3.4 million, or $0.41 per share attributable to the Fort Dodge
settlement.

Embrex uses earnings before interest, taxes, depreciation and amortization
(EBITDA) as an additional performance measure. Embrex believes that EBITDA,
which is a non-GAAP financial measure, provides investors with supplemental
information about its financial performance.  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 decreased $4.2 million to $9.1 million for the first nine months of 2004
from $13.3 million during the same period of 2003.  At September 30, 2004, cash
and cash equivalents totaling $5.8 million were $3.8 million lower than the
$9.6 million on hand at December 31, 2003. This was principally due to $9.9
million of capital investment to complete the Embrex Poultry Health biological
manufacturing facility and to purchase additional devices and other equipment.
In addition, $3.5 million was used to repurchase shares of Embrex's common
stock and $0.7 million was used to pay down its line of credit. These were
partially offset by $7.5 million of cash provided by operations, $0.6 million
received in connection with the exercise of stock options, and $2.2 million
received from the construction loan financing the Embrex Poultry Health
biological manufacturing facility.

"As our revenues show -- especially the recurring portion from device fees --
Embrex has improved its position in a very challenging global poultry market,"
said Randall Marcuson, President and Chief Executive Officer of Embrex. 
"Although parts of Asia remain troubled by avian influenza-induced production
and trade issues, Embrex remains pleased that we are doing as well in that
region as we are with year-to-date revenues in that region essentially the same
as 2003.  Egg set increases in the United States, and strong growth in Brazil
has contributed to our solid growth year over year.  We're also pleased with
the outcome of our initial Inovoject(TM) trials in Mexico and received news in
early October that Newplex(TM) Newcastle vaccine had received regulatory
approval in Turkey."

Embrex's management, led by Mr. Marcuson, will discuss third-quarter financial
results in a conference call on November 3 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 1371785.  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 November 3 to midnight ET November 17, by dialing
800-642-1687 (domestic and Canada), or [phone] (international),
conference ID#8897611.  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 Ovo Company(R), 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, competition arising in the United
States, possible decreases in production by our customers, avian disease
outbreaks in Embrex's markets, 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 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(R) are trademarks of
Embrex, Inc.

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

                         Financial Tables Follow



Please see Embrex's Form 10-Q filed with the SEC for detailed GAAP financial
statements.

                     Consolidated Statement of Operations
                   (In thousands except per share amounts)

                                   Three Months            Nine Months
                                    (unaudited)            (unaudited)
                                Ended September 30,     Ended September 30,
                                  2004      2003         2004      2003

  Revenues
    Device revenues              $11,944   $11,018      $34,496   $32,708
    Product sales                    703       390        1,556     1,452
    Other revenue                    118        99          396       359
  Total revenues                  12,765    11,507       36,448    34,519

  Cost of device revenues and
   product sales                   5,132     4,536       14,742    14,023
                                   7,633     6,971       21,706    20,496
  Gross profit
  Operating expenses:
    General & administrative       2,631     1,868        7,484     5,123
    Sales & marketing                713       656        2,046     2,157
    Research & development         2,768     2,755        7,522     7,666
  Total operating expenses         6,112     5,279       17,052    14,946

  Operating income                 1,521     1,692        4,654     5,550

  Other income (expense)
    Interest income                   23        42           65       130
    Interest expense                 (10)       (9)         (26)      (10)
    Foreign currency gain              5         3          109        14
    Other income (expense)             -       (81)           -     3,710
  Total other income (expense)        18       (45)         148     3,844

  Income before income tax
   expense                         1,539     1,647        4,802     9,394

  Income tax expense (benefit)       769    (1,001)       2,113     1,586

  Net income                        $770    $2,648       $2,689    $7,808
  Net income per share of
   Common Stock:
    Basic                          $0.10     $0.32        $0.34     $0.96
    Diluted                        $0.09     $0.32        $0.32     $0.93

  No. of shares used in per share
   calculation:
    Basic                          7,919     8,159        7,969     8,151
    Diluted                        8,290     8,398        8,313     8,358

  EBITDA                          $3,019    $2,982       $9,119   $13,332


               GAAP Reconciliation of Net Income to EBITDA
                              (In thousands)

                                     Three Months           Nine Months
                                      (unaudited)           (unaudited)
                                  Ended September 30     Ended September 30
                                    2004      2003         2004      2003

  Net income                        $770    $2,648       $2,689    $7,808
  Add back:
  Depreciation and amortization    1,470     1,326        4,291     3,928
  Interest expense                    10         9           26        10
  Income tax expense (benefit)       769    (1,001)       2,113     1,586
  EBITDA                          $3,019    $2,982       $9,119   $13,332


                  Condensed Consolidated Balance Sheets
                              (In thousands)

                                               September 30,   December 31,
                                                    2004           2003
                                                (unaudited)

  ASSETS
    Current assets                                 $20,033        $23,367
    Non-current assets                              41,195         36,350
  Total assets                                     $61,228        $59,717

  LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities                             $6,913         $7,621
    Non-current liabilities                          8,647          6,404
    Shareholders' equity                            45,668         45,692
  Total liabilities and shareholders' equity       $61,228        $59,717


             Condensed Consolidated Statements of Cash Flows
                              (in thousands)

                                                    Nine Months (unaudited)
                                                      Ended September 30
                                                     2004           2003

  Net cash provided by operating activities         $7,519         $9,596

  Net cash used in investing activities             (9,978)       (12,765)
  Net cash used in financing activities             (1,418)         5,111
  Increase/decrease in cash and cash equivalents    (3,877)         1,942
  Currency translation adjustments                      27            635
  Cash and cash equivalents at beginning of period   9,629          8,039
  Cash and cash equivalents at end of period        $5,779        $10,616


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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