Martek Announces First Quarter FY 2010 Financial Results
- First quarter revenue of $89.8 million and earnings in line with updated Q1 guidance
- Q1 total revenues up 3% and Non-GAAP earnings (excluding acquisition costs) up 8% from last year
- Q1 non-infant formula nutritional revenues increased 40% from fiscal 2009's first quarter
- Acquisition of Amerifit completed in mid-February 2010
COLUMBIA, Md., March 2 /PRNewswire-FirstCall/ -- Martek Biosciences Corporation (Nasdaq: MATK) today announced its financial results for the first quarter of fiscal 2010. Revenues for the first quarter were $89.8 million, up 3% from $87.4 million in the first quarter of fiscal 2009. GAAP net income was $9.6 million, or $0.29 per diluted share, for the first quarter of fiscal 2010, consistent with the earnings levels in last year's first quarter. The first quarter of fiscal 2010 included expenses associated with the acquisition of Amerifit Brands ("Amerifit") of $1.2 million. Excluding these amounts, net of tax, the fiscal 2010 first quarter earnings would have been $10.4 million, or $0.31 per diluted share, an increase of 8% over the first quarter of fiscal 2009 (see "Reconciliation of GAAP to Non-GAAP Net Income Measure" below).
Commenting on the quarter, Chief Executive Officer Steve Dubin said, "Fiscal 2010 is off to a good start as a result of continued strong growth in Martek's DHA sales for markets outside of infant formula. DHA sales outside of formula increased by 40% over Q1 2009, including a 60% increase in sales of DHA for food and beverage applications as a number of projects that were stalled in the pipeline during the economic downturn are now beginning to come to market. Sales of DHA and ARA for infant formula were down slightly from Q1 2009 levels, but I am encouraged by what appears to be a bottoming of that market and the prospect that we may be returning to growth in the second quarter, a quarter ahead of what we forecasted in our Q4 2009 guidance."
Mr. Dubin continued, "I believe that Martek is well-positioned for growth in 2010 thanks to the combination of a positive outlook for our nutritional ingredients business and the recent completion of our acquisition of Amerifit. Beyond 2010, the Amerifit platform should enable Martek to develop consumer brands for some of the exciting new products in our research and development pipeline, resulting in an acceleration of products to the marketplace and increased gross profit opportunities as we move up the value chain by getting closer to the consumer."
Revenue Summary
Product sales in the first quarter of fiscal 2010 were $84.1 million. While total product sales were essentially unchanged from the first quarter of fiscal 2009, there were changes in the components, most notably an increase of 40% in non-infant formula nutritional revenues along with a 4% decrease in infant formula-related sales.
A breakdown of product sales by market for the first quarter periods (in thousands) follows:
Three months ended January 31,
-----------------------------
% incr
2010 2009 (decr)
---- ---- ------
Infant formula market $71,541 $74,591 (4%)
Food and beverage market 4,193 2,618 60%
Pregnancy and nursing, nutritional
supplements and animal feeds 7,370 5,664 30%
Non-nutritional products 982 1,149 (15%)
-- ----
Total product sales $84,086 $84,022 0%
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In addition, contract manufacturing and services revenues in the first quarter totaled $5.7 million, compared with $3.3 million a year ago. Of the $5.7 million in first quarter of fiscal 2009, approximately $4.6 million relates to contract manufacturing activities which the Company anticipates exiting, in large measure, over the course of fiscal 2010. The remaining $1.1 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 first quarter of fiscal 2010 was 43.0%, a slight increase over the 42.4% gross margin realized in the first quarter of fiscal 2009, but a slight decrease from the 43.8% gross margin in Martek's fiscal 2009 fourth quarter. Compared to the fourth quarter, gross profit margins from product sales in the first quarter were up slightly; however, the increase was offset by a decline in contract manufacturing margins. See "Financial Guidance" for the gross margins projected for the Company's second quarter.
Research and development expenses in the first quarter of fiscal 2010 were $7.1 million, or 7.9% of revenue, consistent with the corresponding quarter of last year. Martek's research and development focuses on both broadening the market applications for the Company's life'sDHA™ 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 first quarter of fiscal 2010, selling, general and administrative expenses ("SG&A") were $13.3 million, or 14.8% of revenue, a slight increase from $13.1 million, or 15.0% of revenue, in the first quarter of fiscal 2009.
Acquisition of Amerifit and Financial Position
On February 12, 2010, Martek completed its previously announced acquisition of Amerifit, a consumer health and wellness company. Amerifit develops, markets and distributes branded consumer health and wellness products and holds leading brand positions in all of its key product categories. Amerifit 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. At closing, Martek paid total, all-cash consideration for Amerifit of approximately $200 million.
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 $50 million and replaces Martek's former credit facility of $135 million which was due to expire in September 2010.
Significant Recent Events
- Non-Infant Formula Product Launches – Products with Martek's life'sDHA™ were recently launched in the United States including Natelle®One (Azur Pharma Ltd) prescription prenatal vitamin with 250 mg life'sDHA™, Algal-900 DHA Softgels (CVS/Pharmacy®) with 900 mg life'sDHA™, Spring Valley® Algal-900 DHA (Wal-Mart) with 900 mg life'sDHA™, Horizon™ Organic Lowfat Chocolate Milk Plus DHA Omega-3 (WhiteWave Foods) and Sara Lee® Soft & Smooth Plus Bread (Sara Lee).
- New Scientific Data Published on DHA and ARA – The benefits of DHA and ARA supplementation were recently discussed in the following publications:
- The American Journal of Clinical Nutrition (online, February 2010) published results of a study investigating DHA supplementation on brain function. Thirty-three healthy boys, 8-10 years of age, were supplemented with 400 or 1200 mg/day DHA or placebo for 8 weeks and tested during an activity of continuous performance. The results showed that the DHA level in red blood cells was positively correlated with brain function and inversely correlated with reaction time during the activity. These results demonstrate the important role that DHA plays in regulation of brain activity. Martek provided financial support and life'sDHA™ for this study.
- The American Journal of Clinical Nutrition (online, February 2010) published the results of a study in which 343 term infants were fed formula containing no long-chain polyunsaturated fats or formula supplemented with 0.32% DHA, 0.64% DHA, or 0.96% DHA throughout the first year of life. All DHA-supplemented formula also contained 0.64% ARA. Visual evoked potential (VEP) was measured at 1.5, 4, 9, and 12 months. At 12 months, all DHA-supplemented infants scored significantly better in VEP visual acuity than those given an unsupplemented formula. There were also no significant differences in VEP visual acuity between the three DHA-supplemented groups. The authors state that these subtle changes in vision are important "because they suggest diet-related modifications in the developmental course of structure and function in the brain and/or retina" and that "dietary supply of DHA during infancy may have long-lasting effects on brain function." Martek's life'sDHA™ and life'sARA™ were used in the study.
Financial Guidance
Projected results for Martek (not including Amerifit), Amerifit (stand-alone, post-acquisition) and on a consolidated basis for the three months ended April 30, 2010 are as follows:
Three months ended April 30, 2010
---------------------------------
(in millions, except per share
data and pro forma adjustment
information) Martek Amerifit (a) Consolidated
------ ------------ ------------
Revenue $95.0 – 99.0 $16.5 – 18.0 $111.5 –117.0
Earnings before interest
and taxes $16.5 – 18.0 $1.5 – 2.0(b) $18.0 – 20.0
Net income (including
acquisition costs and a
non-recurring cost of
goods sold adjustment) $10.0 – 11.0
Diluted EPS $0.30 – 0.33
Non-GAAP net income
(excluding estimated
acquisition costs, net
of tax, of $1.4 million
and non-recurring cost
of goods sold adjustment,
net of tax of $700,000) $12.1 – 13.1
Non-GAAP diluted EPS $0.36 – 0.39
(a) Projected Amerifit results are included for the period from date of
acquisition (February 12, 2010) through April 30, 2010.
(b) Includes non-recurring cost of goods sold adjustment of $1.1 million.
Martek is providing certain financial information for Amerifit on a stand-alone basis to provide investors greater clarity through the integration process.
For the second quarter of fiscal 2010, Martek expects infant formula revenue to be between $78.0 million and $82.0 million, non-infant formula nutritional revenue to be between $11.0 million and $12.5 million, and contract manufacturing and services revenue to be between $4.0 million and $4.5 million.
Consolidated gross margin is expected to be between 46.5% and 47.5%, including the non-recurring cost of goods sold adjustment noted above associated with the estimated effects of a write-up of inventory in connection with purchase accounting of $1.1 million, which reduces gross margin by approximately 1%.
Reconciliation of GAAP to Non-GAAP Net Income Measure
The Company makes reference in this release to non-GAAP presentations of fiscal 2010 net income and earnings per share that excludes expenses associated with the acquisition of Amerifit. We are providing this information to assist investors in comparing the results of the current periods to those in the prior year periods when the items were not present. We caution investors, however, that these non-GAAP results should only be considered in addition to results that are reported under current GAAP and should not be considered as a substitute for results that are presented under GAAP. Following is a schedule showing the reconciliation of net income reported under GAAP to the non-GAAP financial measure included herein ($ in thousands):
Three months ended January 31,
-----------------------------
2010 2009
---- ----
Net income, as reported under GAAP $9,643 $9,606
Add: acquisition costs, net of tax 742 -
--- ---
Non-GAAP net income measure $10,385 $9,606
======= ======
Non-GAAP diluted earnings per share $0.31 $0.29
===== =====
Investor Conference Call Webcast
Martek will host a conference call and webcast for investors to review its first quarter results and second quarter of fiscal 2010 outlook at 4:45 p.m. Eastern Time on Tuesday, March 2, 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 through the close of business on April 2, 2010.
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 second quarter of fiscal 2010 for both Martek and Amerifit; (3) its expectations regarding launches by customers of products containing Martek's life'sDHA™ 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. 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™, 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™ (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. Amerifit 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™ or life'sARA™ 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 January 31,
-----------------------------
2010 2009
---- ----
Revenues:
Product sales $84,086 $84,022
Contract manufacturing and services 5,670 3,341
----- -----
Total revenues 89,756 87,363
------ ------
Cost of revenues:
Cost of product sales 45,937 46,909
Cost of contract manufacturing
and services 5,233 3,409
----- -----
Total cost of revenues 51,170 50,318
------ ------
Gross margin 38,586 37,045
------ ------
Operating expenses:
Research and development 7,066 6,749
Selling, general and administrative 13,289 13,097
Amortization of intangible assets 1,445 1,781
Acquisition costs 1,187 -
Other operating expenses 34 153
--- ---
Total operating expenses 23,021 21,780
------ ------
Income from operations 15,565 15,265
Interest income (expense) and other, net (137) 160
---- ---
Income before income tax provision 15,428 15,425
Income tax provision 5,785 5,819
----- -----
Net income $9,643 $9,606
====== ======
Basic earnings per share $0.29 $0.29
===== =====
Diluted earnings per share $0.29 $0.29
===== =====
Shares used in computing basic
earnings per share 33,276 33,150
Shares used in computing diluted
earnings per share 33,454 33,399
Unaudited Condensed Consolidated Balance Sheets Data
January 31, October 31,
2010 2009
---- ----
Assets:
Cash and cash equivalents $150,072 $141,063
Short-term investments 7,278 7,301
Accounts receivable, net 55,087 44,304
Inventories, net 114,006 116,179
Other current assets 4,638 5,240
Property, plant and equipment, net 250,231 252,279
Deferred tax asset 25,184 24,303
Long-term investments 4,556 4,495
Goodwill, intangibles and other long-term
assets, net 97,197 94,653
------ ------
Total assets $708,249 $689,817
======== ========
Liabilities and stockholders' equity:
Current liabilities $35,714 $34,756
Deferred tax liability 15,898 10,091
Other non-current liabilities 9,439 8,826
Stockholders' equity 647,198 636,144
------- -------
Total liabilities and stockholders' equity $708,249 $689,817
======== ========
Unaudited Condensed Consolidated Cash Flow Data
Three months ended January 31,
-----------------------------
2010 2009
---- ----
Operating activities:
Net income $9,643 $9,606
Non-cash items 14,851 12,960
Changes in operating assets and liabilities, net (8,069) (13,965)
------ -------
Net cash provided by operating activities 16,425 8,601
------ -----
Investing activities:
Sale of investments and marketable securities, net 50 -
Expenditures for property, plant and equipment (3,433) (2,531)
Capitalization of intangible assets (1,138) (1,309)
------ ------
Net cash used in investing activities (4,521) (3,840)
------ ------
Financing activities:
Repayments of notes payable and other long-term
obligations, net (30) (29)
Payment of debt issuance costs (3,328) -
Proceeds from equity transactions, net 463 82
--- ---
Net cash (used in) provided by financing activities (2,895) 53
----- ---
Net change in cash and cash equivalents 9,009 4,814
Cash and cash equivalents, beginning of period 141,063 102,495
------- -------
Cash and cash equivalents, end of period $150,072 $107,309
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CONTACT |
|
Kyle Stults |
|
Investor Relations |
|
(410) 740-0081 |
|
SOURCE Martek Biosciences Corporation
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