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."
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.
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 life'sDHA(TM) -- 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 Natural(TM) 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 following: -- 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.
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 http://investors.martek.com. 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.
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 Year ended October 31, October 31, 2008 2007 2008 2007 Revenues: 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 Assets: 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 CONTACT Kyle Stults Investor Relations (410) 740-0081 firstname.lastname@example.org
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