Martek Biosciences Corporation today announced its financial results for the second quarter of fiscal 2009. Revenues for the second quarter were $92.4 million, up 2% from $90.7 million in the second quarter of fiscal 2008. Net income was $11.0 million, or $0.33 per diluted share, for the second quarter of fiscal 2009, a 20% increase compared with $9.2 million, or $0.28 per diluted share, in last year's second quarter.
Commenting on the quarter, Chief Executive Officer Steve Dubin said, "The continued execution of our business plan allowed Martek to generate record revenues and profits in the second quarter. These results were achieved despite the challenges of a struggling global economy. We continue to be encouraged by recent infant formula sales data which indicates that end consumer demand for infant formula is stable despite the weak global economic environment. As such, while infant formula related revenue in the second half of our fiscal 2009 will be impacted by some inventory de-stocking, Martek is still expecting strong 2009 earnings as a result of growth in our non-infant formula business and controlling our expenses during this period. I believe our growing non-infant formula business coupled with an expected resumption in growth in our infant formula business in 2010 will lay a solid foundation for 2010."
Product sales in the second quarter of fiscal 2009 increased to $88.2 million from $87.9 million in the second quarter of fiscal 2008. Second quarter revenue growth was driven by sales of life'sDHA(TM) to non-infant formula nutritional markets which grew to a record level of $9.8 million, up from $8.3 million in the prior year's second quarter. The 18% increase in non-infant formula nutritional products was led by significantly higher sales to the pregnancy and nursing market.
In addition, contract manufacturing sales in the second quarter totaled $4.3 million, compared with $2.9 million a year ago. This increase was primarily due to a change in the timing of orders from one existing customer. While the Company expects to continue reducing the scope of its contract manufacturing activities, Martek will, at times, provide such services to both existing and new customers if reasonable profit margins are expected and there is no impact to the Company's higher margin nutritional oils business.
Gross Margin and Operating Expenses
Overall gross margin for the second quarter of fiscal 2009 was 42.3%, an increase over the 41.2% gross margin realized in the second quarter of fiscal 2008. The improvement resulted largely from ARA cost reductions and increased capacity utilization at Martek's manufacturing facilities.
Research and development expenses in the second quarter of fiscal 2009 were $7.2 million, an increase of 5% over the corresponding quarter of last year. Research and development as a percentage of revenue increased to 7.7% from 7.5% in the prior year's second quarter. The increase relates primarily to development work focusing on offerings for new markets and broadening the array of foods and beverages in which the Company's life'sDHA(TM) can be incorporated. 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 2009, selling, general and administrative expenses ("SG&A") were $12.9 million, or 13.9% of revenue, a decrease from $14.2 million or 15.7% of revenue in last year's second quarter. The Company continues to closely manage its SG&A spending levels. Martek expects that for fiscal 2009, SG&A will be lower than fiscal 2008 levels on both a percentage of revenue and absolute dollar basis reflecting the cost management measures employed by the Company to address economic challenges.
For the six months ended April 30, 2009, the Company generated $25.6 million of cash from operating activities, with the second quarter providing $17.0 million of this total. As of the end of the second quarter, Martek had $117.9 million in cash and cash equivalents, a minimal amount of debt and the entire balance of its long-term revolving credit facility ($135 million) available for future borrowing.
Significant Recent Events
-- Non-Infant Formula Product Launches - Several non-infant formula
nutritional products with Martek's life'sDHA(TM) were launched
by Martek's customers, including Walmart Spring Valley DHA dietary
supplements and The Coca Cola Company's Minute Maid Blueberry Pom
single serve beverage, an extension of Minute Maid's current
Pomegranate Blueberry juice with life'sDHA(TM).
-- Multi-Year Sole-Source Infant Formula Supply Agreements - Martek entered
into multi-year, sole-source infant formula supply agreements with Rice
Field Corporation ("Rice Field") and Lactalis Nutrition Sante
("Lactalis"). Under the Rice Field agreement, Martek will
supply its DHA and ARA blend for all infant formula products
manufactured by Rice Field under the Prodigy brand. Rice Field will
also be using Martek's life'sDHA(TM) and life'sARA(TM) in
its growing-up milks and will be using life'sDHA(TM) in its
products for pregnant and nursing women, all of which will be sold under
the Prodigy brand in China. Under the Lactalis agreement, Martek will
supply its life'sARA(TM) for use in infant formula and growing-up
milks produced by Lactalis and sold in France and Algeria.
-- Multi-Year Exclusive Food and Beverage Supply Agreement - Martek entered
into a multi-year supply agreement with Ragasa, one of Mexico's
largest providers of raw and refined oil products and maker of
Mexico's leading consumer cooking oil brand, Nutrioli, under which
Ragasa has agreed to purchase all of its DHA omega-3 needs from Martek.
Ragasa plans to launch a product featuring life'sDHA(TM) in 2009
and will display the life'sDHA(TM) logo on the product packaging
and in all related promotional materials.
-- Arrangement for the Production of Influenza Drug Precursor - Consistent
with the services provided by Martek in 2006, Martek has been re-engaged
to manufacture shikimic acid, the starting material used to produce an
anti-viral drug for the treatment of influenza. Sales for such services
are expected to approximate $4.5 million, with one-half of this total
anticipated to occur in Martek's fourth quarter of fiscal 2009 and
the remainder anticipated to occur during the first half of fiscal 2010.
-- New Scientific Data Published on DHA - A summary document for the
International Society for the Study of Fatty Acids and Lipids published
in Prostaglandins, Leukotrienes and Essential Fatty Acids (February
2009) discussed obtaining adequate DHA intake in light of current
western diets. They concluded that with no other changes in diet,
improvement of blood DHA status can be achieved with dietary supplements
of preformed DHA (such as Martek's life'sDHA(TM)), but not
with supplementation of ALA, EPA, or other precursors.
Memory Study Results to be Released
Martek's Memory Improvement With Docosahexaenoic Acid Study (MIDAS) clinical trial studying the effects of life'sDHA(TM) supplementation in improving cognitive functions (i.e. - working memory, memory retention and attention) in healthy subjects with age-related cognitive decline has concluded. Results of this study will be the subject of an oral presentation at the International Conference on Alzheimer's Disease to be held July 11 - 16, 2009 in Vienna, Austria.
Based on recent retail sales data, Martek estimates that overall end consumer demand for infant formula in the United States as well as internationally is stable despite the weak global economy. Nonetheless, we believe that de-stocking of infant formula inventory is occurring at both the retail level as well as the manufacturer level (our customers). As a result of this inventory de-stocking, Martek's infant formula revenue is expected to be negatively impacted during the Company's third and fourth fiscal quarters by a combined total of $10 million to $15 million.
Martek expects total revenues for the third quarter of fiscal 2009 to be between $77 million and $85 million with third quarter infant formula revenue projected to be between $63 million and $70 million and third quarter non-infant formula nutritional revenue projected to be between $8.5 million and $10.5 million. Third quarter gross margin is expected to be approximately 43%. Net income for the third quarter is projected to be between $7.7 million and $9.3 million, and diluted earnings per share are projected to be between $0.23 and $0.28.
For the full fiscal year 2009, Martek expects total revenues to be between $350 million and $355 million. Net income for the full fiscal year 2009 is projected to be between $40 million and $42 million, and diluted earnings per share are projected to be between $1.20 and $1.25, a pre-tax earnings increase of between 10% and 15% over fiscal 2008.
The Company anticipates that infant formula revenue will grow in fiscal 2010 as a result of continued strong end consumer demand for infant formula products containing DHA and ARA.
Investor Conference Call Webcast
Martek will host a conference call and Webcast for investors to review its second quarter results and fiscal 2009 outlook at 4:45 p.m. Eastern Time on Wednesday, June 3, 2009. 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 July 3, 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 and beliefs regarding the impact of customer de-stocking on revenues in the third and fourth quarters of fiscal 2009; (3) its expectations regarding revenue, gross margin, operating expenses and income for the third quarter of and full fiscal year 2009; and (4) its expectations regarding launches by customers of products containing Martek's life'sDHA(TM) and Martek's 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, 2008 and other filed reports on Form 10-K, Form 10-Q and Form 8-K.
Martek Biosciences Corporation 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 www.martek.com.