(Source: PRNewswire-FirstCall)
COLUMBIA, Md., Sept. 2 /PRNewswire-FirstCall/ -- Martek Biosciences Corporation today announced its financial results for the third quarter of fiscal 2009. Revenues for the third quarter were $77.8 million, down 12% from $88.4 million in the third quarter of fiscal 2008. Net income was $8.9 million, or $0.27 per diluted share, for the third quarter of fiscal 2009, a 4% decrease compared with $9.3 million, or $0.28 per diluted share, in last year's third quarter.
Commenting on the quarter, Chief Executive Officer Steve Dubin said, "Martek's third quarter 2009 financial results benefited from a 41% quarter over quarter increase in non-infant formula product sales, a 220 basis point gross margin improvement from last year, and our cost control efforts, but, as anticipated and disclosed at the time of our second quarter earnings press release, we were negatively impacted by de-stocking of inventory by certain of our infant formula customers. Despite some continuing effects of this customer de-stocking, I expect a strong fourth quarter for both revenues and earnings. Looking forward to 2010, the de-stocking issue should be behind us and our growing non-infant formula business coupled with an expected resumption in growth in our infant formula business should lay a solid foundation for 2010."
Revenue Summary
Product sales in the third quarter of fiscal 2009 decreased to $75.0 million from $83.5 million in the third quarter of fiscal 2008. The revenue decline in the current year's third quarter was caused by the previously announced de-stocking of inventory by certain infant formula customers. The effect of the de-stocking was partially offset by record non-infant formula nutritional revenues of $10.6 million in the third quarter of fiscal 2009. The 41% increase in non-infant formula nutritional products compared to the prior year's third quarter was led by significantly higher sales to the pregnancy and nursing market.
A breakdown of product sales by market for the third quarter and year-to-date periods (in thousands) follows:
Three months ended Nine months ended July 31, July 31, --------------------- ----------------------- % % incr incr 2009 2008 (decr) 2009 2008 (decr) ------------------------------------------------------------------------ Infant formula market $63,320 $74,815 (15%) $215,294 $223,483 (4%) Food and beverage market 2,681 2,526 6% 8,278 7,793 6% Pregnancy and nursing, nutritional supplements and animal feeds 7,931 5,019 58% 20,396 15,424 32% Non-nutritional products 1,112 1,121 (1%) 3,250 3,265 (1%) ----- ----- ----- ----- Total product sales $75,044 $83,481 (10%) $247,218 $249,965 (1%) ======= ======= ======== ========
In addition, contract manufacturing sales in the third quarter totaled $2.8 million, compared with $4.9 million a year ago due to a planned reduction in the scope of the Company's contract manufacturing activities over the long-term. While the Company expects to continue reducing the scope of its contract manufacturing activities, Martek will provide contract services to both existing and new customers if reasonable profit margins can be generated, there is no impact to the Company's higher margin nutritional oils business or the Company believes that such services could have a strategic fit.
Gross Margin and Operating Expenses
Overall gross margin for the third quarter of fiscal 2009 was 43.7%, a record gross margin, and a significant increase over the 41.5% gross margin realized in the third quarter of fiscal 2008. The improvement resulted largely from ARA cost reductions and DHA productivity increases.
Research and development expenses in the third quarter of fiscal 2009 were $6.6 million, an increase of 5% over the corresponding quarter of last year. 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 third quarter of fiscal 2009, selling, general and administrative expenses ("SG&A") were $11.4 million, a decrease from $13.6 million in last year's third 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. Such cost management measures during the third quarter included reductions to estimated annual incentive compensation payouts which resulted in a reversal of certain previously accrued incentive compensation expenses.
Financial Position
As of the end of the third quarter, Martek had $129.3 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. For the nine months ended July 31, 2009, the Company generated $40.0 million of cash from operating activities, with the third quarter providing $14.4 million of this total. Year-to-date operating cash flows were impacted by an increase in ARA inventory levels. Consistent with prior years, the timing of Martek's purchases of ARA are largely dependent upon DSM's scheduled production runs. Significant ARA production runs by DSM during the third quarter coupled with lower sales served to increase ARA inventory by approximately $15 million compared to the second quarter. In general, Martek purchases a minimal amount of ARA from DSM during the fourth quarter. As a result, the Company's total inventory value at October 31, 2009 is projected to be between $115 million and S118 million.
Significant Recent Events -- Joint Development Agreement with BP - Martek entered into a Joint Development Agreement (JDA) with BP to work on the production of microbial oils for biofuels applications. Under the terms of the multi-year agreement, Martek and BP will work together to establish proof of concept for large-scale, cost effective microbial biodiesel production through fermentation. BP has agreed to contribute up to $10 million to this initial phase of the collaboration with Martek performing the biotechnology research and development associated with these initial development activities.
