Second Quarter Highlights:
COLUMBIA, Md., June 4 /PRNewswire-FirstCall/ -- Martek Biosciences Corporation (NASDAQ:MATK) today announced its financial results for the second quarter of fiscal 2008. Revenues for the second quarter were $90.7 million, up 18% from $76.7 million in the second quarter of fiscal 2007. Net income was $9.2 million, or $0.28 per diluted share, for the second quarter of fiscal 2008 compared with $4.9 million, or $0.15 per diluted share, in last year's second quarter.
Commenting on the quarter, Chief Executive Officer Steve Dubin said, "Martek's strong second quarter results reflect the continued execution of the Company's business plan. Martek's core infant formula business grew, especially overseas, and solid revenue increases were seen in non-infant formula markets. Interest from food, beverage and supplements companies in our nutritional oils continues to grow which should lead to further expansion of our non-infant formula business. In addition, advancements continue in the development of both new applications for life'sDHA(TM) as well as new products to support Martek's long-term growth." Second Quarter and Year-to-Date Revenue Summary Product sales in the second quarter of fiscal 2008 increased 21% over the second quarter of fiscal 2007 to $87.9 million. Product sales in fiscal 2008 year-to-date increased 20% over fiscal 2007 year-to-date to $166.5 million. These increases reflect continued strong demand from Martek's U.S. and international infant formula customers, the launch of new and the growth of existing food and beverage products containing life'sDHA(TM) and the Company's increased penetration into its other non-infant formula nutritional markets. Sales to the infant formula market in the second quarter of fiscal 2008 were approximately $3 million above the high-end of the guidance previously provided by the Company primarily due to the production timing and related product ordering patterns of several large customers.
Following is a breakdown of product sales by market for the second quarter and year-to-date periods (in thousands): Three months ended April 30, Six months ended April 30,
%
% incr
2008 2007 incr 2008 2007 (decr) Infant formula
market $78,390 $65,929 19% $148,668 $126,781 17%
Food and beverage
market 3,172 1,147 177% 5,267 1,868 182%
Pregnancy and
nursing,
nutritional
supplements and
animal feeds 5,113 4,176 22% 10,405 8,149 28%
Non-nutritional
products 1,200 1,084 11% 2,144 2,250 (5%)
Total product
sales $87,875 $72,336 21% $166,484 $139,048 20% New products launched during the second quarter co-branded with the Martek life'sDHA(TM) logo include: Food and Beverage Products
-- Challenge Spreadable Butter with life'sDHA(TM) (United States)
-- WhiteWave Foods' Rachel's(R) Wickedly Delicious Yogurt with
life'sDHA(TM) (new flavors in the United States)
-- Plum Organics' baby food with life'sDHA(TM) (United States)
-- Soyaworld's So Good Omega DHA Soymilk with life'sDHA(TM) (Canada)
-- Maverick Brands' Sunkist Naturals Glorious Greens Smoothie with
life'sDHA(TM) (United States)
-- National Foods' Berri Australian Fresh Omega-3 for Heart & Mind juice-
blend with life'sDHA (Australia)
-- Bimbo Bakeries' Oroweat 9 Grain Bread with life'sDHA(TM) (United
States)
-- Canada Bread Company's Dempster's Smart(TM) 100% Whole Grain Wheat
Bread with life'sDHA(TM) (Canada)
Nutritional Supplement Products
-- Spectrum Organics' Spectrum Essentials Vegetarian DHA with
life'sDHA(TM) (United States)
-- Flora's Bija - Udo's Choice DHA Omega-3 Truffles with life'sDHA(TM)
(Canada)
-- Flora's Udo's Choice Unrefined Algae DHA Vegetarian Softgel with
life'sDHA(TM) (Canada)
-- Source-Omega's Pure One Optimized Omega-3 with life'sDHA(TM) (United
States)
Contract manufacturing sales in the second quarter totaled $2.9 million, compared with $4.4 million a year ago, and in the year-to-date period totaled $7.1 million, compared with $7.9 million in the prior year. The decline in contract manufacturing revenues resulted from the Company's decision to narrow its contract manufacturing services to include only products with expected reasonable profit margins or those that the Company believes could have a strategic fit in the future.
Gross Margin and Operating Expenses Overall gross margin for the second quarter of fiscal 2008 was 41.2%, essentially unchanged from the 41.1% gross margin realized in the first quarter of 2008, but a significant increase over the 34.8% gross margin realized in the second quarter of fiscal 2007. The gross profit margin improvement from last year's second quarter resulted from DHA productivity gains at Martek's manufacturing facilities, as well as reductions in ARA costs. Contract manufacturing gross margins were slightly lower than anticipated, but Martek believes that such margins will improve in the third quarter and contract manufacturing margins for the full fiscal year 2008 will be between 5% and 10%.
Research and development expenses in the second quarter of fiscal 2008 were $6.8 million, or approximately 8% of revenue which is similar to prior year levels. The Company's research and development efforts continue to focus on developing new food and beverage applications for life'sDHA(TM), broadening the scientific evidence supporting the benefits of life'sDHA(TM) throughout life, improving manufacturing processes and developing new products to expand the Company's market offerings. In the future, the Company expects to experience quarter-to-quarter fluctuations in research and development expenses primarily due to the timing of outside services, including third-party clinical trial services. The Company anticipates that its research and development spend for the full fiscal year 2008 will also approximate 8% of revenue.
During the second quarter of fiscal 2008, selling, general and administrative expenses were $14.2 million, within the range of the second quarter estimates previously provided. As a percentage of revenue, the Company's selling, general and administrative expenses were 15.7%, consistent with the first quarter. For the full fiscal year 2008, the Company expects S,G & A as a percentage of revenue to be near 16%, compared to 14.6% in fiscal 2007. The spending increase from fiscal 2007 relates primarily to the Company's continued investment in new personnel required to support growth, expansion of marketing efforts designed to increase sales in both infant formula and non-infant formula markets as well as projected increases in the variable component of Company-wide compensation resulting from Martek's improved overall financial performance.
Liquidity For the six months ended April 30, 2008, the Company generated $38.8 million of cash from operating activities with the second quarter providing $23.6 million of this total primarily through strong profits. At the end of the quarter, Martek had $44.7 million in cash and cash equivalents and had the entire balance of its long-term revolving credit facility ($135 million) available for future borrowing. Excluded from the Company's cash balance at quarter-end are "AAA" rated, long-term auction rate security investments valued at $14.7 million. During the second quarter, Martek recorded an approximately $800,000 unrealized loss on such investments in other comprehensive income reflecting the decline, which is expected to be temporary, in the estimated fair value of these securities due primarily to lack of current liquidity.
Inventory levels are approximately $3 million higher than amounts at October 31, 2007 due to the timing of the Company's ARA purchases from DSM, Martek's ARA supplier. The Company anticipates that overall inventory levels at year-end will ultimately be lower than such prior year-end amounts, further contributing to the projected improved cash flow generation during the second half of fiscal 2008.
Significant Recent Events
-- New Alliance formed with Dow AgroSciences - In May 2008, Martek
announced the signing of a collaborative agreement with Dow
AgroSciences LLC to jointly develop and commercialize a canola seed
that produces the omega-3 fatty acid, DHA. Under the terms of the
agreement, Martek and Dow AgroSciences will co-develop the canola seed
for the purpose of producing a DHA-rich canola oil. The companies
anticipate a multi-year effort to produce this new healthy oil, which
when commercialized will be marketed to the food industry.
-- New Data Published on Benefits of DHA - The benefits of DHA
supplementation were recently discussed in several publications: -- A study published in the American Journal of Clinical Nutrition
(March 2008) examined visual acuity in infants whose mothers
received DHA supplementation during pregnancy. In this randomized
control trial, pregnant women were either supplemented with 400mg
DHA per day or given placebo during their second and third trimester
and infant visual acuity was measured in the children at 60 days of
age. The results of the study showed that infants from mothers who
received DHA supplementation exhibited a better visual response than
those from mothers who received placebo. Martek's life'sDHA(TM) was
used in this study.
-- A report published in the Journal of Pediatrics (March 2008)
evaluating the role of polyunsaturated fatty acids on infant
development indicated that higher cord blood DHA was associated with
longer gestation and better visual acuity and cognitive function in
these infants. The authors note the importance of DHA during the
third trimester of pregnancy.
-- A study published in the journal Pediatrics (June 2008) evaluated
the effect of enriching human milk with DHA and ARA to be fed to
premature infants. In this randomized, double-blind, placebo-
controlled study, 141 premature infants received either an added
32mg of DHA plus 31mg ARA or placebo per 100ml human milk. The
intervention began one week after birth and continued until hospital
discharge (nine weeks on average). The results showed that infants
receiving the DHA/ARA enriched human milk demonstrated better
recognition memory and had higher problem solving scores at six
months than the non-enriched milk group. Martek's life'sDHA(TM) was
used in this study. Management Outlook
As previously discussed by the Company, revenue for the third quarter of fiscal 2008 is expected to be lower than that for the second quarter of fiscal 2008 due to the production timing and related product ordering patterns of several large customers. Accordingly, Martek expects total revenues for the third quarter of fiscal 2008 to be between $85 million and $88 million. Third quarter infant formula revenue is projected to be between $71 million and $73 million; third quarter non-infant formula nutritional revenue is projected to be between $9 million and $10 million and third quarter contract manufacturing revenue is projected to be between $3.5 million and $4 million. Net income for the third quarter is projected to be between $7.6 million and $8.3 million, and diluted earnings per share are projected to be between $0.23 and $0.25.
Third quarter gross margin is expected to be approximately 41% with some improvement expected in the fourth quarter.
For the full fiscal year 2008, the Company expects revenues to be between $344 million and $350 million, a projected increase over fiscal 2007 of between 12% and 14%, with growth coming from all major product markets, including infant formula revenue where growth from the prior year is expected to be between 9% and 11%, slightly higher than previously estimated. Net income for the full fiscal year 2008 is projected to be between $33.6 million and $35.0 million, and diluted earnings per share are projected to be between $1.01 and $1.05.
Investor Conference Call Webcast Martek will host a conference call and Webcast for investors to review its second quarter results and fiscal 2008 outlook at 4:45 p.m. Eastern Time on Wednesday, June 4, 2008. Access to the live audio Webcast is available through Martek's website athttp://investors.martek.com. The webcast will be available for replay through the close of business on July 4, 2008.
General Sections of this release contain forward-looking statements concerning, among other things: (1) Martek's expectations regarding future revenue growth in and customer demand from the infant formula, pregnancy and nursing, nutritional supplements and food and beverage markets; (2) its expectations regarding revenues, profitability, cash flows from operations and changes in inventory levels during fiscal 2008; (3) statements regarding specific revenue, gross margin, operating expense and income expectations for the third quarter of and full year fiscal 2008; and (4) its expectations regarding launches by customers of products containing Martek's life'sDHA(TM). Furthermore, Martek's operating results are subject to quarter-to-quarter fluctuations, some of which may be significant. The forward-looking statements noted above are based upon numerous assumptions which Martek cannot control and involve risks and uncertainties that could cause actual results to differ. These statements should be understood in light of the risk factors and cautionary statements set forth herein and in the Company's filings with the Securities and Exchange Commission, including, but not limited to, Part I, Item 1A of the Company's Form 10-K for the fiscal year ended October 31, 2007 and other filed reports on Form 10-K, Form 10-Q and Form 8-K.
About Martek Martek Biosciences Corporation (NASDAQ:MATK) is a leader in the innovation and development of omega-3 DHA products that promote health and wellness through every stage of life. The Company produces life'sDHA(TM), a vegetarian source of the omega-3 fatty acid DHA (docosahexaenoic acid), for use in foods, infant formula and supplements, and life'sARA(TM) (arachidonic acid), an omega-6 fatty acid, for use in infant formula. For more information on Martek Biosciences, visit http://www.martek.com/.
MARTEK BIOSCIENCES CORPORATION
Summary Consolidated Financial Information
(Unaudited - $ in thousands, except per share data)
Condensed Consolidated Statements of Income Data Three months ended Six months ended
April 30, April 30,
2008 2007 2008 2007 Revenues:
Product sales $87,875 $72,336 $166,484 $139,048
Contract manufacturing
sales 2,851 4,350 7,123 7,899
Total revenues 90,726 76,686 173,607 146,947
Cost of revenues:
Cost of product sales 50,579 45,817 95,676 88,786
Cost of contract
manufacturing sales 2,764 4,192 6,452 7,615
Total cost of revenues 53,343 50,009 102,128 96,401
Gross margin 37,383 26,677 71,479 50,546
Operating expenses:
Research and development 6,819 6,033 12,800 11,975
Selling, general and
administrative 14,234 10,488 27,215 21,120
Amortization of intangible
assets 1,877 1,373 3,556 2,919
Restructuring charge - 83 - 601
Other operating expenses 96 623 249 1,096
Total operating
expenses 23,026 18,600 43,820 37,711
Income from operations 14,357 8,077 27,659 12,835
Interest income (expense)
and other, net 309 (433) 526 (874)
Income before income tax
provision 14,666 7,644 28,185 11,961
Income tax provision 5,464 2,775 10,314 4,342 Net income $9,202 $4,869 $17,871 $7,619 Basic earnings per share $0.28 $0.15 $0.54 $0.24 Diluted earnings per share $0.28 $0.15 $0.54 $0.23
Shares used in computing
basic earnings per share 32,916 32,239 32,830 32,209
Shares used in computing
diluted earnings per share 33,231 32,442 33,151 32,430 Unaudited Condensed Consolidated Balance Sheets Data April 30, October 31,
2008 2007 Assets:
Cash and cash equivalents $44,656 $16,973
Short-term investments - 4,675
Accounts receivable, net 44,593 41,643
Inventories, net 112,521 109,409
Other current assets 5,221 8,237
Property, plant and equipment, net 270,530 277,915
Deferred tax asset 43,395 51,306
Long-term auction rate security investments 14,701 -
Goodwill and other, net 84,798 86,537
Total assets $620,415 $596,695 Liabilities and stockholders' equity:
Current liabilities $43,219 $46,141
Non-current liabilities 10,748 18,827
Stockholders' equity 566,448 531,727
Total liabilities and stockholders' equity $620,415 $596,695 Unaudited Condensed Consolidated Cash Flow Data Six months ended
April 30,
2008 2007 Operating activities:
Net income $17,871 $7,619
Non-cash items 24,464 18,067
Changes in operating assets and liabilities, net (3,579) (17,896)
Net cash provided by operating activities 38,756 7,790 Investing activities:
(Purchase) sale of investments and marketable
securities, net (10,850) 6,850
Expenditures for property, plant and equipment (3,576) (3,059)
Repurchase of sale-leaseback equipment - (3,910)
Capitalization of intangible assets (2,165) (3,929)
Net cash used in investing activities (16,591) (4,048) Financing activities:
Repayments of notes payable and other
long-term obligations, net (426) (505)
Repayments under revolving credit facility, net - (5,000)
Proceeds from stock option exercises and
other, net 5,944 1,903
Net cash provided by (used in) financing
activities 5,518 (3,602) Net change in cash, cash equivalents 27,683 140
Cash and cash equivalents, beginning of period 16,973 15,578 Cash and cash equivalents, end of period $44,656 $15,718
CONTACT
Kyle Stults
Investor Relations
(410) 740-0081
DATASOURCE: Martek Biosciences Corporation CONTACT: Kyle Stults, Investor Relations, Martek Biosciences Corporation, +1-410-740-0081, Web site: http://www.martekbio.com/
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