Revenues of $20.5 Million; Earnings Slightly Over $2 Million
COLUMBIA, Md., March 13 /PRNewswire-FirstCall/ -- Martek Biosciences Corporation (Nasdaq: MATK) today announced its financial results for its first fiscal quarter of 2003 (1st Qtr 03), which ended January 31, 2003. For the 1st Qtr 03 revenues of $20.5 million were achieved, up from $6.0 million for the 1st Qtr 02. For the 1st Qtr 03, Martek earned net income of $2.1 million, or $0.08 per fully diluted share, compared to a net loss of ($2.9 million) or ($0.15) per share in the 1st Qtr 02.
"It's a good beginning to an expected good year," stated Henry "Pete" Linsert, Jr., Chief Executive Officer of Martek.
1st Qtr 2003 Consolidated Financial Results
Total revenues for the 1st Qtr 03 were $20.5 million, an increase of $14.6 million or 244% over the 1st Qtr 02. The majority of this increase is due to higher sales of nutritional products to the Company's infant formula licensees (For a history of the Company's nutritional products sales by quarter see the chart at (http://www.martekbio.com/images/corporatePages/QB223X5R.gif). Over 90% of Martek's 1st quarter revenue was generated by sales of docosahexaenoic acid (DHA) and arachidonic acid (ARA) to three of the Company's infant formula licensees: Mead Johnson, Wyeth Ayerst and Abbott Laboratories. Supplemented term infant formulas manufactured by these companies were introduced in the U.S. in 2002 and are now collectively being marketed in over 30 countries around the world.
Gross profit improved to 40% during the 1st Qtr 03, up from 30% for the same period last year, primarily due to lower ARA costs from DSM Gist B.V. (DSM), Martek's third party manufacturer of ARA oil. These cost savings were realized primarily as a result of economies of scale achieved by DSM in their production of ARA. Management expects continued decreases in the future costs of ARA from DSM as Martek's sales volumes continue to increase; however, these cost savings may be negatively impacted by weakness in the US dollar exchange rate with the Euro. Management also anticipates reductions in DHA production costs as economies of scale are realized from increased output and efficiencies at the Company's Winchester, KY production plant and yield improvements from the Company's past R&D efforts are realized.
Research and development expenses decreased by $209,000 or 7% in the 1st Qtr 03 compared to the 1st Qtr 02. This decrease was achieved despite the costs associated with Martek Boulder (formerly OmegaTech), which was acquired in April 2002, and accounted for an additional $540,000 in research and development costs in the 1st Qtr 03 that were not incurred by Martek in the 1st Qtr 02. Martek's research and development expenses are decreasing as many of the large-scale development projects occurring in 2002 at the Company's Winchester plant have been completed.
Selling, general and administrative expenses increased by $1.7 million or 85% during the 1st Qtr 03 over the 1st Qtr 02. $1.1 million of the increase is related to operating costs associated with Martek Boulder. The remaining increase is due to increased insurance costs and costs for general corporate purposes.
During the 1st Qtr 03 the Company reversed approximately $250,000 of expense related to the restructuring of its food and beverage sales efforts which was originally reserved for in July 2002. The reversal was recognized as certain expenditures related to the restructuring were less than the Company had originally anticipated.
Net income of $2.1 million, or $0.08 per share on a diluted basis, was realized in the 1st Qtr 03, compared to a net loss of ($2.9 million), or ($0.15) per share for the 1st Qtr 02. The Company's net income for the quarter, excluding the impact of the $250,000 restructuring reversal noted above, was approximately $1.8 million. Taxes were not considered due to the Company's net operating loss carryforwards.
The Company produced cash flow from operations of $2.6 million in the 1st Qtr 03. Capital expenditures for the quarter were $6.4 million, of which $6.0 million was for equipment at our Winchester, KY plant to increase the output of the Company's nutritional oils. At the end of the quarter, Martek had approximately $21.1 million in cash and cash equivalents, a decrease of $1.3 million from October 31, 2002.
Recent events impacting Martek include:
* The recent expansion of supplemented formula sales -- new products, new
markets, new licensees -- Wal-Mart recently introduced a new DHA-
enriched product to its private label infant formula line, Parents
Choice(TM), which is supplememted with Martek's DHA and ARA oils. Wyeth,
one of the Company's licensees, manufactures the product. Also, Mead
Johnson Nutritionals Canada introduced a new DHA and ARA fortified
infant formula product to its line of Enfamil(R) products for the
Canadian market. This product introduction followed the fall 2002
announcement by Health Canada (the Canadian equivalent of the US FDA)
that it had completed a favorable review of Martek's application to use
the Company's DHA and ARA in Canadian infant formulas. Health Canada's
action pertained solely to Martek's oils, and allows only Martek's DHA
and ARA to be used in supplemented infant formulas sold in Canada.
Finally, Laboratorios Ordesa recently signed a non-exclusive license
agreement for Martek's technology relating to the use of long-chain
polyunsaturated fatty acids in infant formula. The license covers Spain
* The expansion of production facilities -- The Company recently began
utilizing a new 25,000 sq. ft. building for shipping, packaging, cold
storage and administration at its Winchester, KY plant. Three new
270,000 liter fermentors were put into production at the facility in
November and we expect these fermentors to be up to full scale operation
in the next few months.
* New clinical data on DHA and pregnancy and lactation -- A recent study
published in the January 2003 edition of Pediatrics found that mothers
who supplemented their diet with fatty acids rich in DHA and other
omega-3 fatty acids during pregnancy and lactation gave birth to
children who scored 4 IQ points higher on standardized intelligence and
achievement tests at four years of age than those whose mothers
supplemented with fatty acids that do not contain DHA. Also a study
published in the March 2003 edition of the journal Obstetrics and
Gynecology found that expectant mothers who increased their consumption
of DHA during the last trimester of pregnancy by eating DHA-rich eggs
increased their length of gestation by an average of 6 days (a
statistically significant finding).
* New information on DHA and cardiovascular disease -- Recent statements
issued by the American Heart Association recommend increased consumption
of Omega-3 fats, specifically DHA, for improved cardiovascular health. A
report published in The New England Journal of Medicine found that
contaminants found in many fish may lead to an increased risk of heart
attack. Martek's Neuromins(R) provides a vegetarian-based source of DHA
that solves the problem of how to reap the benefits of Omega-3 fatty
acids without eating fish.
* Line of Credit -- In late February, the Company closed a one-year, $10
million secured working capital line of credit facility with Allfirst
Bank of Baltimore, Md.
Sections of this release contain forward-looking statements concerning, among other things: (1) expectations regarding future revenue growth, product introductions, growth in nutritional product sales, production expansion, margin and productivity improvements, applications and potential collaborations and acquisitions; (2) expectations regarding sales to infant formula licensees; (3) expectations regarding future efficiencies in manufacturing processes and the costs of production of nutritional oils and purchase of third-party manufactured oils; (4) future research and development costs; and (5) production capacity. These statements 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 set forth above and in the Company's filings with the Securities and Exchange Commission, including, but not limited to our Form 10-K for the fiscal year ended October 31, 2002 and other filed reports on Form 10-Q and Form 8-K.
Martek Biosciences Corporation develops, manufactures and sells products from microalgae. The Company's products include: (1) specialty, nutritional oils for infant formula that aid in the development of the eyes and central nervous system in newborns; (2) nutritional supplements and food ingredients that may play a beneficial role in promoting mental and cardiovascular health throughout life; and (3) new, powerful fluorescent markers for diagnostics, rapid miniaturized screening, and gene and protein detection.