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Martek Announces Fourth Quarter and FY 2008 Financial Results

COLUMBIA, Md., Dec. 11 /PRNewswire-FirstCall/ -- Martek Biosciences Corporation (Nasdaq: MATK) today announced its financial results for the fourth quarter and fiscal year ended October 31, 2008. Revenues for the fourth quarter were $90.4 million, up 10% from $82.0 million in the fourth quarter of fiscal 2007. Net income was $10.5 million, or $0.31 per diluted share, for the fourth quarter of fiscal 2008 compared with $18.3 million, or $0.55 per diluted share, in last year's fourth quarter. Both the fourth quarter of fiscal 2008 and 2007 included a non-recurring tax benefit with such tax benefits totaling $1.5 million and $10.8 million in the fiscal 2008 and fiscal 2007 periods, respectively.

Excluding the impact of the tax benefits, the Company's net income on a non-GAAP basis would have been $8.9 million, or $0.27 per diluted share, in the fourth quarter of fiscal 2008 compared to $7.5 million, or $0.23 per diluted share, in the fourth quarter of fiscal 2007, a 17% increase. (see "Reconciliation of GAAP to Non-GAAP Net Income Measure" below).

Commenting on the quarter, Chief Executive Officer Steve Dubin said, "Our results in this year's fourth quarter as well as the full fiscal year 2008 reflect the continued execution of our business plan. During the year, we increased penetration in international infant formula markets, expanded the use of DHA outside of infant formula and significantly improved our profitability and cash flow generation. These solid results have yielded a strong year-end balance sheet that includes over $100 million in cash and cash equivalents and is essentially debt-free. While economic conditions will present challenges, I believe that Martek is well-positioned to deliver revenue and profit growth in the year ahead."

Revenue Summary

Product sales in the fourth quarter of fiscal 2008 increased 10% year-over-year to $86.6 million, and product sales for FY08 grew to $336.6 million, a 15% increase over prior year levels. These increases reflect higher revenues from Martek's infant formula customers, particularly outside of the United States, and a solid growth in sales of life'sDHA(TM) to non-infant formula markets which grew more than 30% in both the fourth quarter and full fiscal year periods.

Following is a breakdown of product sales by market for the fourth quarter and fiscal year 2008 periods (in thousands):

                        Three months ended October 31,  Year ended October 31,
                                 2008    2007 %incr        2008    2007  %incr
                                              (decr)                    (decr)
    Infant formula market     $77,259 $72,246   7%     $300,742 $265,563  13%
    Food and beverage market    2,638   1,706  55%       10,431    5,483  90%
    Pregnancy and nursing,
     nutritional supplements
     and animal feeds           5,411   4,444  22%       20,835   17,439  19%
    Non-nutritional products    1,336     629 112%        4,601    4,064  13%
     Total product sales      $86,644 $79,025  10%     $336,609 $292,549  15%

Contract manufacturing sales in the fourth quarter totaled $3.7 million, compared with $3.0 million a year ago, and in fiscal 2008 totaled $15.8 million, compared with $14.3 million in the prior year. These increases were primarily due to additional orders from one existing customer. During fiscal 2009, the Company anticipates continuing to reduce the scope of its contract manufacturing activities focusing more of its resources on the Company's higher margin nutritional oils business.

Gross Margin and Operating Expenses

Overall gross margin for the fourth quarter of fiscal 2008 was 41.3%, an increase over the 40.2% gross margin realized in the fourth quarter of fiscal 2007. The improvement resulted largely from enhanced DHA production yields, increased capacity utilization at Martek's manufacturing facilities, and reductions in ARA costs. These margin improvements were attained by the Company despite experiencing increases in both utility and raw material costs during fiscal 2008.

Research and development expenses in the fourth quarter of fiscal 2008 were $7.1 million, or approximately 8% of revenue, consistent, on a percentage of revenue basis, with the fourth quarter of fiscal 2007. 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 continue 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. Research and development expenses in fiscal 2008 were $26.2 million, or 7.4% of revenue, fairly consistent, on a percentage of revenue basis, with research and development spending levels in fiscal 2007.

During the fourth quarter of fiscal 2008, selling, general and administrative expenses were $13.4 million, or 14.8% of revenue, which is consistent with the prior year's fourth quarter. For the full fiscal year 2008, selling, general and administrative expenses as a percentage of revenue were approximately 15.4%, compared to 14.6% in fiscal 2007.

Financial Position

For the fiscal year ended October 31, 2008, the Company generated $106.5 million of cash from operating activities with the fourth quarter providing $44.6 million of this total. The Company's fiscal 2008 operating cash generation more than doubled the amounts achieved in fiscal 2007. In the fourth quarter, Martek's cash flow was nearly equivalent to the Company's total operating cash generation for all of fiscal 2007, underscoring the inherent leverage in Martek's business model. Contributing to the 2008 cash generation were strong current year profits as well as a nearly $10 million reduction in inventory held during fiscal 2008, bringing the year-end inventory balance to $99.6 million, the Company's lowest inventory level since mid-2006.

At the end of the year, Martek had $102.5 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 October 31, 2008 cash balance are $11.3 million of long-term auction rate security investments backed by student loans and guaranteed by the U.S. Department of Education.

    Significant Recent Events
    -- New products recently launched with Martek's life'sDHA(TM) include:
       --  Infant Formula Products -- Wimm-Bill-Dan infant formula with
          life'sDHA(TM) and life'sARA(TM) (Russia)
       -- Food and Beverage Products --
         -- U.S. Launches -- Kellogg's Live Bright(TM) Brain Health Bar with
            life'sDHA(TM); Pompeian OlivExtra(R) Plus Omega-3 DHA, Canola Oil
            & Extra Virgin Olive Oil with life'sDHA(TM); Life Balance(TM)
            Tortillas Fortified with Vitamins and Calcium with life'sDHA(TM);
            Omega To-Go beverage with life'sDHA(TM); Glenny's Marshmallow
            Treats with life'sDHA(TM) and 8th Continent Complete soymilk with
         -- International Launches -- Farm Pride Omega-3 Eggs with
            life'sDHA(TM); Capilano Honey with life'sDHA(TM) and Rafferty's
            Garden Baby Food with life'sDHA(TM)  (All in Australia) and Bija
            Udo's Choice Omega Truffles with life'sDHA(TM)  (Canada)
       --  Nutritional Supplement Products -- 21st Century Healthcare 200mg
           and 300mg capsules with life'sDHA(TM) and Walgreen's Finest
          300mg Triple Strength with life'sDHA(TM) (All in U.S.)
    -- Sole-Source Infant Formula Supply Agreements -- Martek's continues to
       enter into sole-source supply agreements with its infant formula
       customers. As of October 31, 2008, the Company has secured multi-year,
       sole-source agreements (in most cases through 2011) with customers
       comprising nearly 80% of its current infant formula revenue.  During
       the fourth quarter, Martek entered into multi-year sole-source supply
       agreements with several infant formula companies, including the
       -- Hero -- Martek entered into a multi-year sole-source DHA and ARA
          license and supply agreement with Hero, an international consumer
          foods company. Under the terms of the agreement, Martek will serve
          as Hero's exclusive supplier for all of its ARA and DHA needs for
          infant formula products, growing-up milks and certain special
          medical purpose and weaning foods.
       -- Hochdorf Nutricare -- Martek entered into a multi-year sole-source
          supply agreement with Hochdorf Nutricare AG for the use of ARA in
          China and certain parts of Europe.  Under the terms of the
          agreement, Martek will be the exclusive supplier of ARA for all
          infant formula products manufactured by Hochdorf Nutricare.
       -- Grupo Ricap -- Martek entered into a multi-year sole source supply
          agreement with Grupo Ricap. Under the terms of the agreement, Martek
          will supply DHA and ARA for all infant formulas produced by Grupo
          Ricap in Mexico.

Financial Guidance

Martek expects total revenues for the first quarter of fiscal 2009 to be between $86 million and $89 million with first quarter infant formula revenue projected to be between $74 million and $77 million and first quarter non-infant formula nutritional revenue projected to be between $7 million and $8.5 million. First quarter gross margin is expected to be approximately 42.5%. Net income for the first quarter is projected to be between $8.7 million and $9.7 million, and diluted earnings per share are projected to be between $0.27 and $0.29.

With respect to fiscal 2009, the Company expects moderate growth of both revenues and profitability over fiscal 2008 with profitability growing at a higher rate than revenues primarily due to improvements in gross profit margins; however, a deep, prolonged economic recession would yield additional uncertainty with respect to the Company's attainment of its forecasted operating results.

Reconciliation of GAAP to Non-GAAP Net Income Measure

The Company makes reference in this release to non-GAAP presentations of net income and earnings per share that exclude certain non-recurring tax benefits and restructuring charge. We are providing this information to assist investors in comparing the results of the current period to those in the prior year periods when the non-recurring 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     Year ended
                                            October 31,         October 31,
                                          2008       2007     2008     2007

    Net income, as reported under GAAP  $10,464    $18,268  $37,667  $32,013
     Deduct: Non-recurring income tax
      benefits (a)                       (1,540)   (10,841)  (1,540) (10,841)
     Add: Restructuring charge                -        106        -      853
     Deduct: Tax benefit of
      restructuring charge                    -        (38)       -     (307)

    Non-GAAP net income measure          $8,924     $7,495  $36,127  $21,718

    Non-GAAP diluted earnings per share   $0.27      $0.23    $1.09    $0.67

    (a) In fiscal 2008, relates primarily to certain previously unrecognized
        income tax credits and in fiscal 2007, relates to a reversal of the
        deferred tax asset valuation allowance.

Investor Conference Call Webcast

Martek will host a conference call and Webcast for investors to review its fourth quarter results and fiscal 2009 outlook at 4:45 p.m. Eastern Time on Thursday, December 11, 2008. Access to the live audio Webcast is available through Martek's website at The webcast will be available for replay through the close of business on January 11, 2009.


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; (2) its expectations regarding revenue, gross margin, operating expense and income for the first quarter of and full fiscal 2009; and (3) its expectations regarding launches by customers of products containing Martek's life'sDHA(TM) and its contract manufacturing business. 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

                  Summary Consolidated Financial Information
             (Unaudited - $ in thousands, except per share data)

    Condensed Consolidated Statements of Income Data

                                   Three months ended          Year ended
                                      October 31,              October 31,
                                   2008         2007        2008         2007

     Product sales              $86,644      $79,025    $336,609     $292,549
     Contract manufacturing
      sales                       3,708        2,995      15,753       14,264
       Total revenues            90,352       82,020     352,362      306,813

    Cost of revenues:
     Cost of product sales       49,838       46,364     192,848      179,367
     Cost of contract
      manufacturing sales         3,174        2,656      14,000       13,952
       Total cost of revenues    53,012       49,020     206,848      193,319
       Gross margin              37,340       33,000     145,514      113,494
    Operating expenses:
     Research and development     7,145        6,302      26,223       24,853
     Selling, general and
      administrative             13,412       12,172      54,181       44,855
     Amortization of intangible
      assets                      1,947        2,037       7,422        6,558
     Restructuring charge             -          106           -          853
     Other operating expenses       914          362       1,504        1,614
       Total operating expenses  23,418       20,979      89,330       78,733

    Income from operations       13,922       12,021      56,184       34,761
    Interest income (expense)
     and other, net                 274           73       1,137       (1,089)
    Income before income tax
     provision (benefit)         14,196       12,094      57,321       33,672
    Income tax provision
     (benefit)                    3,732       (6,174)     19,654        1,659

    Net income                  $10,464      $18,268     $37,667      $32,013

    Basic earnings per share      $0.32        $0.56       $1.14        $0.99

    Diluted earnings per share    $0.31        $0.55       $1.13        $0.98
    Shares used in computing
     basic earnings per share    33,124       32,650      32,951       32,336
    Shares used in computing
     diluted earnings per share  33,441       32,975      33,284       32,593

    Unaudited Condensed Consolidated Balance Sheets Data

                                                 October 31,     October 31,
                                                     2008            2007

     Cash and cash equivalents                      $102,495        $16,973
     Short-term investments                                -          4,675
     Accounts receivable, net                         40,438         41,643
     Inventories, net                                 99,553        109,409
     Other current assets                              4,866          8,237
     Property, plant and equipment, net              265,900        277,915
     Deferred tax asset                               38,356         51,306
     Long-term auction rate security investments      11,336              -
     Goodwill and other, net                          83,037         86,537
    Total assets                                    $645,981       $596,695

    Liabilities and stockholders' equity:
     Current liabilities                             $47,342        $46,141
     Non-current liabilities                          10,056         18,827
     Stockholders' equity                            588,583        531,727
    Total liabilities and stockholders' equity      $645,981       $596,695

    Unaudited Condensed Consolidated Cash Flow Data

                                                        Year ended October 31,
                                                            2008      2007

    Operating activities:
     Net income                                           $37,667   $32,013
     Non-cash items                                        49,492    31,186
     Changes in operating assets and liabilities, net      19,389   (17,339)
    Net cash provided by operating activities             106,548    45,860

    Investing activities:
     (Purchase) sale of investments and marketable
      securities, net                                      (8,450)    6,575
     Expenditures for property, plant and equipment        (9,785)   (8,279)
     Proceeds from sale of fluorescent detection products
      business                                                  -       900
     Repurchase from sale-leaseback transaction                 -    (3,910)
     Capitalization of intangible assets                   (3,895)   (6,010)
    Net cash used in investing activities                 (22,130)  (10,724)

    Financing activities:
     Repayments of notes payable and other long-term
      obligations, net                                     (8,917)   (1,013)
     Repayments under revolving credit facility, net            -   (36,000)
     Proceeds from stock option exercises and other, net   10,021     3,272
    Net cash provided by (used in) financing activities     1,104   (33,741)

    Net change in cash, cash equivalents                   85,522     1,395
    Cash and cash equivalents, beginning of period         16,973    15,578

    Cash and cash equivalents, end of period             $102,495   $16,973

     Kyle Stults
     Investor Relations
     (410) 740-0081

SOURCE Martek Biosciences Corporation
Copyright©2008 PR Newswire.
All rights reserved

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