MARTEK BIOSCIENCES CORP. 
By COLUMBIA, Md., June 3 /PRNewswire-FirstCall/ -- Martek Biosciences Corporation (Nasdaq: MATK) today announced its financial results for the second quarter of fiscal 2010. Revenues for the second quarter were $124 million, up 34% from $92.4 million in the second quarter of fiscal 2009. GAAP net income was $12.5 million, or $0.37 per diluted share, for the second quarter of fiscal 2010, compared to $11.0 million, or $0.33 per diluted share, for the second quarter of fiscal 2009. These revenues and earnings include the results of Amerifit Brands ("Amerifit" or "branded consumer health products"), the acquisition of which was completed by Martek on February 12, 2010.
The second quarter of fiscal 2010 included charges related to the acquisition of Amerifit of $3.5 million. Excluding these amounts, net of tax, the fiscal 2010 second quarter earnings would have been $15.0 million, or $0.45 per diluted share, an increase of 37% over the second quarter of fiscal 2009 (see Table II "Reconciliation of GAAP to Non-GAAP Net Income Measure" below).
Commenting on the quarter, Chief Executive Officer Steve Dubin said, "The improving economy, new launches of products with Martek's life'sDHA, growing international markets for Martek's products and sales of Amerifit's branded consumer health products all contributed to Martek's record quarterly results. This year as a whole is looking strong from a revenue perspective, although revenues for the balance of 2010 are projected to be somewhat uneven on a quarter-to-quarter basis due to customer plant shutdowns for maintenance and other timing matters. Martek's strong run rate coming out of fiscal 2010 should provide an excellent platform from which to grow as some of Martek's new products currently in development begin to hit the market over the next eighteen months as additional consumer brands launched through Amerifit's marketing and distribution channels."
Revenue Summary
Product sales in the second quarter of fiscal 2010 increased $30.9 million to $119.1 million from $88.2 million in the second quarter of fiscal 2009. This increase was partially attributable to the branded consumer health product sales of the newly-acquired Amerifit which totaled $18 million for the period from acquisition date (February 12, 2010) through April 30, 2010. The remainder of the increase, or $12.9 million, was almost entirely the result of sales of our nutritional ingredients in both the infant formula and non-infant formula markets. Demand increases outside the United States, particularly in Asia, were a key driver of this growth. We believe that a portion of the nutritional ingredient revenue increase, estimated to be in the range of $4 million to $8 million, was associated with inventory stocking by our customers following depletion of inventories in 2009 as well as their production timing and related product ordering patterns.
A breakdown of product sales for the second quarter and fiscal year to date periods (in thousands) follows:
Three months ended April
30,
-------------------------
2010 2009%
---- ---- incr
(decr)
------
Nutritional ingredients:
Infant formula $86,318 $77,383 12%
Food and beverage 4,519 2,979 52%
Pregnancy and nursing,
nutritional supplements
and animal nutrition 8,831 6,801 30%
----- -----
Total nutritional
ingredients 99,668 87,163 14%
Branded consumer health 18,009 - n/a
Non-nutritional products 1,405 989 42%
Total product sales $119,082 $88,152 35%
======== =======
Six months ended April
30,
-----------------------
2010 2009%
---- ---- incr
(decr)
------
Nutritional ingredients:
Infant formula $157,859 $151,974 4%
Food and beverage 8,712 5,597 56%
Pregnancy and nursing,
nutritional supplements
and animal nutrition 16,201 12,465 30%
------ ------
Total nutritional
ingredients 182,772 170,036 7%
Branded consumer health 18,009 - n/a
Non-nutritional products 2,387 2,138 12%
-----
Total product sales $203,168 $172,174 18%
======== ========
In addition, contract manufacturing and collaborations revenues in the second quarter totaled $4.9 million, compared with $4.3 million a year ago. Of the $4.9 million in second quarter of fiscal 2010, approximately $3.9 million relates to contract manufacturing activities, which the Company continues to anticipate exiting, in large measure, in the third quarter of fiscal 2010. The remaining $1 million relates to revenues associated with Martek's joint development agreement with a subsidiary of BP p.l.c. ("BP") for work on microbial oils for use as biofuels, which began in late fiscal 2009. These development services with BP are expected to continue through at least 2011.
Gross Margin and Operating Expenses
Overall gross margin for the second quarter of fiscal 2010 was 46%, an increase over the 42% gross margin realized in the second quarter of fiscal 2009. This improvement was largely due to ARA cost reductions in the 2010 period and the positive impact on gross margins of branded consumer health product sales. Included in the second quarter's gross margin is the negative effect of approximately $1.7 million (gross margin impact of 1.4%) related to one-time inventory step-up costs resulting from the Amerifit acquisition. Excluding these step-up costs, gross margin would have been 48%.
Research and development expenses in the second quarter of fiscal 2010 were $8.8 million (with no amounts related to Amerifit), consistent with previously stated guidance and up from $7.2 million in last year's second quarter. The increase was due to the Company's expanded clinical and pre-clinical research activities during the current quarter along with higher personnel costs. Martek's research and development focuses on both broadening the market applications for the Company's life'sDHA(TM) as well as leveraging the Company's microbial technology platform to develop new high-value product offerings. The Company continues to expect quarter-to-quarter fluctuations in research and development expenses mainly due to the timing of outside services, including third-party clinical trial services.
During the second quarter of fiscal 2010, selling, general and administrative expenses ("SG&A") were $17.9 million, or 14% of revenue, a slight increase compared to 13% of revenue in last year's second quarter.
Given their significance to the Amerifit business, Martek will now separately disclose expenses incurred associated with advertising and promotion. Such costs during the second quarter totaled $4.0 million, or 3% of revenue. Going forward, we anticipate significant advertising and promotion expenses each quarter as a result of our recently-acquired branded consumer health products business, with such costs fluctuating from quarter to quarter due to the timing of particular advertising and promotional campaigns.
Financial Position
As noted above, on February 12, 2010, Martek completed its acquisition of Amerifit. To finance the Amerifit acquisition, Martek utilized existing cash of approximately $115 million along with the proceeds from a new term debt facility totaling $75 million and $11 million drawn from a new revolving credit facility. Martek's new revolving credit facility has a total borrowing capacity of $100 million and replaces Martek's former credit facility of $135 million which was due to expire in September 2010.
During the second quarter of fiscal 2010, Martek generated approximately $47 million of cash from its operations. This cash generation enabled a full repayment of the $11 million credit facility draw as well as a paydown of $35 million on the term debt during the second quarter. The Company expects to repay the remaining balance on its term debt by October 31, 2010.
Significant Recent Events
-- MIDAS Study Published Which Shows Martek's Algal DHA Improved Memory and
Learning In Healthy Adults with Memory Complaints - The Memory
Improvement with Docosahexaenoic Acid (DHA) Study (MIDAS) published in
May 2010 in Alzheimer's & Dementia: The Journal of the Alzheimer's
Association showed that Martek's algal DHA improved memory function in
healthy aging adults. MIDAS is the first large, randomized,
placebo-controlled study to demonstrate the benefits of DHA in
maintaining and improving brain health in older adults. MIDAS found that
healthy people with memory complaints who took 900mg of Martek's algal
DHA capsules for six months had almost double the reduction in errors on
a test that measures learning and memory performance versus those who
took a placebo, a benefit roughly equivalent to having the learning and
memory skills of someone three years younger. The DHA was well-tolerated
and subjects taking the DHA also experienced a lower heart rate,
providing a significant cardiovascular benefit. The study was funded by
Martek.
-- Non-Infant Formula Product Launches with life'sDHA-
-- Foods and Beverages - Fortune Natural Grains Blended Cooking Oil
(COFCO - China), Future Star Kid Milk (Mengniu - China), Quiznos®
salad dressings (U.S.) Milkana® Golden Baby Cheese (BSI
(Tianjin)® Food Company - China), dha Omega3(TM) Eggs (M. Lasser -
Israel), Earth's Best® Organic Nutritional Mommy Bars (Hain
Celestial - U.S.), H-E-B® Reduced Fat Milk (2%) with DHA Omega-3
and H-E-B® Whole Milk with DHA Omega-3 (Morningstar - U.S.), Rice
Milk with Omega3 DHA(TM) (Freedom Foods - Australia).
-- Pregnancy and nursing and nutritional supplements - Pharmaceutical
LLC PreferaOB One(TM) (Alaven® - US), Algal-900 DHA Softgels
(Walgreens - U.S.), Natural Omega-3 Vegetarian DHA 100 mg Softgels
(Bluebonnet® - U.S.), Natural Omega-3 Vegetarian DHA 200 mg
Softgels (Bluebonnet® - U.S.) and Merck Kidabion(TM) DHA Powder
Drink for Children (China).
-- New Scientific Data/Recommendations Published on DHA and ARA - In
addition to the MIDAS study noted above, the benefits of DHA and ARA
supplementation were recently discussed in the following publications:
-- The Journal of Nutrition (April 2010) published the results of a
study examining the association between omega-3 fatty acids in serum
and cognitive function in mid-life adults. Levels of serum
phospholipid ALA, EPA, and DHA and performance in five major
dimensions of cognitive function were determined in 280 healthy
volunteers, ages 35 to 54. Using regression analysis, higher levels
of DHA were associated with better performance on the tests of
nonverbal reasoning and mental flexibility, working memory and
vocabulary. Neither ALA nor EPA showed a significant relationship
to cognitive function.
-- In the EFSA Journal (March 2010), the European Food Safety
Authority's ("EFSA") Panel on Dietetic Products, Nutrition, and
Allergies ("NDA") officially adopted and published an Opinion on
Dietary Reference Values for fats, including polyunsaturated fatty
acids. The NDA Panel concluded that a daily intake of 250 mg of
long-chain omega-3 fatty acids for adults may reduce the risk of
heart disease. The NDA Panel set an Adequate Intake ("AI") of 250
mg/day EPA+DHA for adults and an AI of 100 mg DHA/day for infants
(>6 months) and young children <24 months. For pregnant or
lactating women, 100-200 mg preformed DHA is recommended in addition
to the 250 mg/day omega-3 DHA+EPA AI for adults.
-- The Joint FAO/WHO Expert Group Consultation on Fats and Fatty Acids
in Human Nutrition released their recommendations as an interim
report from the meeting which was held in Geneva in November 2008.
The report recommends an AI for DHA for ages 0-6 months of 0.1-0.18%
energy with no upper limit other than recognizing high maternal milk
levels of 1.5% total energy. The Committee refers to DHA during
this period as a conditionally essential nutrient. The recommended
AI for ages 6-24 months is 10-12 mg/kg. The Committee recognized
the importance of DHA for retinal and brain development during this
period. A combination of EPA+DHA was recommended for children ages
2-10 years ranging from 100-250 mg/day. For adults, daily
consumption of 100-250 mg/day DHA+EPA is recommended.
-- The Journal of Pediatrics (June 2010) published a report on medical
records as reviewed by investigators unaware of treatment assignment
for two cohorts of infants looking at the incidence of respiratory
infections and allergies at three years of age. The original two
cohorts included 147 infants who had received either a DHA/ARA
containing formula (0.32%-0.36% DHA/0.64%-0.73% ARA) or a formula
without supplementation for one year. Eighty-nine infants were
available for follow up evaluation at age three, 38 in the active
and 51 in the placebo group. The DHA/ARA-supplemented groups had
significantly lower odds for developing upper respiratory
infections, wheezing, asthma, or symptoms of allergy. Martek's
life'sDHA(TM) and life'sARA(TM) were used in the study.
Financial Guidance
Martek is providing certain financial information for Amerifit on a stand-alone basis to provide investors greater clarity through the integration process. Projected results for Martek (not including Amerifit), Amerifit (stand-alone, post-acquisition) and on a consolidated basis for the three months ended July 31, 2010 are as follows:
Three months ended July 31, 2010
--------------------------------
(in millions,
except per share
data) Martek Amerifit Consolidated
------ -------- ------------
Revenue $ 93.0 - 97.0 $ 19.0 - 21.0 $ 113.0 - 118.0
Income from
operations $ 17.0 - 18.0 $ 2.0 - 3.0 $ 19.0 - 21.0
Net income $ 11.0 - 12.0
Diluted EPS $ 0.33 - 0.36
For the third quarter of fiscal 2010, Martek expects infant formula revenue to be between $76.0 million and $80.0 million, non-infant formula nutritional revenue to be between $12.0 million and $14.0 million, and contract manufacturing and collaborations revenue to be between $2.5 million and $3.0 million.
Consolidated gross margin in the third quarter of fiscal 2010 is expected to be between 49% and 50%.
While our revenues for the balance of 2010 are projected to be somewhat uneven on a quarter-to-quarter basis due to customer plant shutdowns for maintenance and other timing matters, Martek expects full fiscal year 2010 revenue to be between $440 million and $445 million, including infant formula revenues of between $307 million and $312 million. These forecasted revenues include projected fourth quarter 2010 revenues similar to those projected for Martek's third quarter. Such projected fourth quarter revenues would equate to year-over-year growth of more than 25%. Furthermore, the projected 2010 annual revenues would represent year-over-year growth in total revenues of 27% to 29% (9% to 11% excluding Amerifit-related revenues) and contemplate meaningful gains in all markets for our nutritional ingredients, including growth in infant formula revenues of 7% to 9% and growth in non-infant formula nutritional revenues of 27% to 35%.
Investor Conference Call Webcast
Martek will host a conference call and webcast for investors to review its second quarter results and third quarter of fiscal 2010 outlook at 4:45 p.m. Eastern Time on June 3, 2010. Access to the live audio webcast is available through Martek's website at http://investors.martek.com. The webcast will be available for replay for 30 days.
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, animal feeds and food and beverage markets as well as markets for Amerifit products; (2) its expectations regarding revenue, gross margin, operating expenses and income for the third quarter of fiscal 2010 and revenue amounts for the full year 2010 for both Martek and Amerifit; (3) its expectations regarding launches by customers of products containing Martek's life'sDHA(TM) and future revenues associated with Martek's contract manufacturing and collaborative services with BP; and (4) its expectations regarding future capabilities of and benefits from the Amerifit acquisition. Furthermore, Martek's operating results are subject to quarter-to-quarter fluctuations, some of which may be significant, and are also subject to future changes in the Company's preliminary purchase price allocation for its Amerifit acquisition. 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, 2009 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, development, production and sales of high-value products from microbial sources that promote health and wellness through nutrition. The Company's technology platform consists of its core expertise, broad experience and proprietary technology in areas such as microbial biology, algal genomics, fermentation and oil processing. This technology platform has resulted in Martek's development of a number of products including the Company's flagship product, life'sDHA(TM), a sustainable and vegetarian source of algal DHA (docosahexaenoic acid) important for brain, heart and eye health throughout life for use in infant formula, pregnancy and nursing products, foods and beverages and dietary supplements. The Company also produces life'sARA(TM) (arachidonic acid), an omega-6 fatty acid, for use in infant formula and growing-up milks. Martek's subsidiary, Amerifit Brands, develops, markets and distributes branded consumer health and wellness products and holds leading brand positions in all of its key product categories. Anerifit products are sold in most major mass, club, drug, grocery and specialty stores and include: Culturelle®, a leading probiotic supplement; AZO, the leading OTC brand addressing symptom relief, detection and prevention of urinary tract infections; and ESTROVEN®, the leading all-natural nutritional supplement brand addressing the symptoms of menopause. Martek currently has a number of nutritional health and wellness products under development that it plans to commercialize and distribute through Amerifit's distribution channels.
Martek's technology platform has also made it a sought-after partner on a range of groundbreaking projects in process, including the development of microbially-derived biofuels and the development of DHA-containing oilseeds. For more information on Martek Biosciences, visit http://www.martek.com/. For a complete list of life'sDHA(TM) or life'sARA(TM) products, visit http://www.lifesdha.com/. For more information about Amerifit Brands, visit www.amerifit.com.
MARTEK BIOSCIENCES CORPORATION
Summary Consolidated Financial Information
(Unaudited - $ in thousands, except per share data)
Unaudited Condensed Consolidated Statements of Income Data
Three months ended Six months ended April
April 30, 30,
------------------ -----------------------
2010 2009 2010 2009
---- ---- ---- ----
Revenues:
Product sales $119,082 $88,152 $203,168 $172,174
Contract
manufacturing and
collaborations 4,886 4,259 10,556 7,600
----- ----- ------ -----
Total revenues 123,968 92,411 213,724 179,774
------- ------ ------- -------
Cost of revenues:
Cost of product
sales 62,362 49,299 108,299 96,208
Cost of contract
manufacturing and
collaborations 4,097 4,017 9,330 7,426
-----
Total cost of
revenues 66,459 53,316 117,629 103,634
------ ------ ------- -------
Gross margin 57,509 39,095 96,095 76,140
------ ------ ------ ------
Operating expenses:
Research and
development 8,821 7,157 15,887 13,906
Selling, general and
administrative 17,926 12,280 30,706 25,031
Advertising and
promotion 3,965 595 4,474 941
Amortization of
intangible assets 2,594 1,595 4,039 3,376
Acquisition costs 1,801 - 2,988 -
Other operating
expenses 171 569 205 722
--- --- --- ---
Total operating
expenses 35,278 22,196 58,299 43,976
------ ------ ------ ------
Income from
operations 22,231 16,899 37,796 32,164
Interest income
(expense) and
other, net (1,378) 186 (1,515) 346
------ --- ------ ---
Income before income
tax provision 20,853 17,085 36,281 32,510
Income tax provision 8,336 6,068 14,121 11,887
----- ----- ------ ------
Net income $12,517 $11,017 $22,160 $20,623
======= ======= ======= =======
Basic earnings per
share $0.37 $0.33 $0.66 $0.62
===== ===== ===== =====
Diluted earnings per
share $0.37 $0.33 $0.66 $0.62
===== ===== ===== =====
Shares used in
computing basic
earnings per share 33,383 33,190 33,329 33,170
Shares used in
computing diluted
earnings per share 33,578 33,310 33,514 33,349
Unaudited Condensed Consolidated Balance Sheets Data
April 30, October 31,
2010 2009
---- ----
Assets:
Cash and cash equivalents $30,207 $141,063
Short-term investments 7,292 7,301
Accounts receivable, net 68,234 44,304
Inventories, net 119,456 116,179
Other current assets 6,368 5,240
Property, plant and equipment, net 249,396 252,279
Deferred tax asset 25,071 24,303
Long-term investments 4,579 4,495
Goodwill, intangibles and other long-
term assets, net 334,096 94,653
------- ------
Total assets $844,699 $689,817
======== ========
Liabilities and stockholders' equity:
Accounts payable and accrued expenses $58,441 $31,365
Notes payable and other long-term
obligations 44,405 810
Deferred tax liability 71,872 10,091
Deferred revenue 9,125 11,407
Stockholders' equity 660,856 636,144
------- -------
Total liabilities and stockholders'
equity $844,699 $689,817
======== ========
Unaudited Condensed Consolidated Cash Flow Data
Six months ended April
30,
-----------------------
2010 2009
---- ----
Operating activities:
Net income $22,160 $20,623
Non-cash items 33,726 27,750
Changes in operating assets and
liabilities, net 7,088 (22,742)
----- -------
Net cash provided by operating activities 62,974 25,631
------ ------
Investing activities:
Cash paid for acquisition of Amerifit, net
of cash acquired (200,743) -
Sale of investments and marketable
securities, net 50 -
Expenditures for property, plant and
equipment (6,827) (5,263)
Capitalization of intangible assets (2,458) (4,435)
------ ------
Net cash used in investing activities (209,978) (9,698)
-------- ------
Financing activities:
Repayments of notes payable and other
long-term obligations (35,061) (59)
Proceeds of term loan 75,000 -
Borrowings from revolving line of credit 11,000 -
Repayments of borrowings from revolving
line of credit (11,000) -
Payment of debt issuance costs (3,944) -
Proceeds (payments) from equity
transactions, net 155 (425)
--- ----
Net cash provided by (used in) financing
activities 36,150 (484)
------ ----
Foreign currency translation adjustment (2) -
Net change in cash and cash equivalents (110,856) 15,449
Cash and cash equivalents, beginning of
period 141,063 102,495
------- -------
Cash and cash equivalents, end of period $30,207 $117,944
======= ========
Table I
MARTEK BIOSCIENCES CORPORATION
SEGMENT INFORMATION
(Unaudited - $ in thousands)
Three months ended Six months ended
April 30, April 30,
------------------ ----------------
2010 2009 2010 2009
---- ---- ---- ----
Segment Revenues
Branded consumer
health products $18,009 $ - $18,009 $ -
Nutritional
ingredients 99,668 87,163 182,772 170,036
Other 6,291 5,248 12,943 9,738
Total $123,968 $92,411 $213,724 $179,774
======== ======= ======== ========
Segment Income
(Loss) From
Operations
Branded consumer
health products $1,893 $ - $1,893 $ -
Nutritional
ingredients 19,680 17,149 35,320 32,591
Other 658 (250) 583 (427)
Total $22,231 $16,899 $37,796 $32,164
======= ======= ======= =======
Table II
MARTEK BIOSCIENCES CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME MEASURE
(Unaudited - $ in thousands)
The Company makes reference in this release to non-GAAP
presentations of fiscal 2010 net income and earnings per share that
excludes expenses associated with the acquisition of Amerifit. We
are providing this information to assist investors in comparing the
results of the current periods to those in the prior year periods
when the items were not present. We caution investors, however, that
these non-GAAP results should only be considered in addition to
results that are reported under current GAAP and should not be
considered as a substitute for results that are presented under
GAAP. Following is a schedule showing the reconciliation of net
income reported under GAAP to the non-GAAP financial measure
included herein ($ in thousands):
Three months ended Six months ended
April 30, April 30,
------------------ ----------------
2010 2009 2010 2009
---- ---- ---- ----
Net income,
as reported
under GAAP $12,517 $11,017 $22,160 $20,623
Add: acquisition
costs, net of
tax 1,462 - 2,202 -
Add: inventory
step-up, net
of tax 1,070 1,070
Non-GAAP net
income
measure $15,049 $11,017 $25,432 $20,623
Non-GAAP
diluted
earnings per
share $0.45 $0.33 $0.76 $0.62
CONTACT
Kyle Stults
Investor Relations
(410) 740-0081
kstults@martek.com
SOURCE Martek Biosciences Corporation
