Martek Announces Second Quarter Revenue of $124 Million, an Increase of 34%

This year as a whole is looking strong from a revenue perspective, although revenues for the balance of 2010 are projected to be somewhat uneven on a quarter-to-quarter basis due to customer plant shutdowns for maintenance and other timing matters.

4 Jun 2010 --- Martek Biosciences Corporation announced its financial results for the second quarter of fiscal 2010. Revenues for the second quarter were $124 million, up 34% from $92.4 million in the second quarter of fiscal 2009. GAAP net income was $12.5 million, or $0.37 per diluted share, for the second quarter of fiscal 2010, compared to $11.0 million, or $0.33 per diluted share, for the second quarter of fiscal 2009. These revenues and earnings include the results of Amerifit Brands ("Amerifit" or "branded consumer health products"), the acquisition of which was completed by Martek on February 12, 2010. 

The second quarter of fiscal 2010 included charges related to the acquisition of Amerifit of $3.5 million.  Excluding these amounts, net of tax, the fiscal 2010 second quarter earnings would have been $15.0 million, or $0.45 per diluted share, an increase of 37% over the second quarter of fiscal 2009.

Commenting on the quarter, Chief Executive Officer Steve Dubin said, "The improving economy, new launches of products with Martek's life'sDHA, growing international markets for Martek's products and sales of Amerifit's branded consumer health products all contributed to Martek's record quarterly results.  This year as a whole is looking strong from a revenue perspective, although revenues for the balance of 2010 are projected to be somewhat uneven on a quarter-to-quarter basis due to customer plant shutdowns for maintenance and other timing matters. Martek's strong run rate coming out of fiscal 2010 should provide an excellent platform from which to grow as some of Martek's new products currently in development begin to hit the market over the next eighteen months as additional consumer brands launched through Amerifit's marketing and distribution channels."

Revenue Summary

Product sales in the second quarter of fiscal 2010 increased $30.9 million to $119.1 million from $88.2 million in the second quarter of fiscal 2009. This increase was partially attributable to the branded consumer health product sales of the newly-acquired Amerifit which totaled $18 million for the period from acquisition date (February 12, 2010) through April 30, 2010.  The remainder of the increase, or $12.9 million, was almost entirely the result of sales of our nutritional ingredients in both the infant formula and non-infant formula markets. Demand increases outside the United States, particularly in Asia, were a key driver of this growth. We believe that a portion of the nutritional ingredient revenue increase, estimated to be in the range of $4 million to $8 million, was associated with inventory stocking by our customers following depletion of inventories in 2009 as well as their production timing and related product ordering patterns.

In addition, contract manufacturing and collaborations revenues in the second quarter totaled $4.9 million, compared with $4.3 million a year ago.  Of the $4.9 million in second quarter of fiscal 2010, approximately $3.9 million relates to contract manufacturing activities, which the Company continues to anticipate exiting, in large measure, in the third quarter of fiscal 2010. The remaining $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 second quarter of fiscal 2010 was 46%, an increase over the 42% gross margin realized in the second quarter of fiscal 2009.  This improvement was largely due to ARA cost reductions in the 2010 period and the positive impact on gross margins of branded consumer health product sales. Included in the second quarter's gross margin is the negative effect of approximately $1.7 million (gross margin impact of 1.4%) related to one-time inventory step-up costs resulting from the Amerifit acquisition. Excluding these step-up costs, gross margin would have been 48%.   

Research and development expenses in the second quarter of fiscal 2010 were $8.8 million (with no amounts related to Amerifit), consistent with previously stated guidance and up from $7.2 million in last year's second quarter. The increase was due to the Company's expanded clinical and pre-clinical research activities during the current quarter along with higher personnel costs. 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 second quarter of fiscal 2010, selling, general and administrative expenses ("SG&A") were $17.9 million, or 14% of revenue, a slight increase compared to 13% of revenue in last year's second quarter.

Given their significance to the Amerifit business, Martek will now separately disclose expenses incurred associated with advertising and promotion. Such costs during the second quarter totaled $4.0 million, or 3% of revenue. Going forward, we anticipate significant advertising and promotion expenses each quarter as a result of our recently-acquired branded consumer health products business, with such costs fluctuating from quarter to quarter due to the timing of particular advertising and promotional campaigns. 

Financial Position 

As noted above, on February 12, 2010, Martek completed its acquisition of Amerifit.  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 $100 million and replaces Martek's former credit facility of $135 million which was due to expire in September 2010.

During the second quarter of fiscal 2010, Martek generated approximately $47 million of cash from its operations. This cash generation enabled a full repayment of the $11 million credit facility draw as well as a paydown of $35 million on the term debt during the second quarter.  The Company expects to repay the remaining balance on its term debt by October 31, 2010.