COLUMBIA, Md., June 4 /PRNewswire-FirstCall/ -- Martek Biosciences Corporation (Nasdaq: MATK) today announced its financial results for the second quarter of fiscal 2008. Revenues for the second quarter were $90.7 million, up 18% from $76.7 million in the second quarter of fiscal 2007. Net income was $9.2 million, or $0.28 per diluted share, for the second quarter of fiscal 2008 compared with $4.9 million, or $0.15 per diluted share, in last year's second quarter.
Commenting on the quarter, Chief Executive Officer Steve Dubin said, "Martek's strong second quarter results reflect the continued execution of the Company's business plan. Martek's core infant formula business grew, especially overseas, and solid revenue increases were seen in non-infant formula markets. Interest from food, beverage and supplements companies in our nutritional oils continues to grow which should lead to further expansion of our non-infant formula business. In addition, advancements continue in the development of both new applications for life'sDHA(TM) as well as new products to support Martek's long-term growth."
Second Quarter and Year-to-Date Revenue Summary
Product sales in the second quarter of fiscal 2008 increased 21% over the second quarter of fiscal 2007 to $87.9 million. Product sales in fiscal 2008 year-to-date increased 20% over fiscal 2007 year-to-date to $166.5 million. These increases reflect continued strong demand from Martek's U.S. and international infant formula customers, the launch of new and the growth of existing food and beverage products containing life'sDHA(TM) and the Company's increased penetration into its other non-infant formula nutritional markets. Sales to the infant formula market in the second quarter of fiscal 2008 were approximately $3 million above the high-end of the guidance previously provided by the Company primarily due to the production timing and related product ordering patterns of several large customers.
Following is a breakdown of product sales by market for the second quarter and year-to-date periods (in thousands):
New products launched during the second quarter co-branded with the Martek life'sDHA(TM) logo include:
Contract manufacturing sales in the second quarter totaled $2.9 million, compared with $4.4 million a year ago, and in the year-to-date period totaled $7.1 million, compared with $7.9 million in the prior year. The decline in contract manufacturing revenues resulted from the Company's decision to narrow its contract manufacturing services to include only products with expected reasonable profit margins or those that the Company believes could have a strategic fit in the future.
Gross Margin and Operating Expenses
Overall gross margin for the second quarter of fiscal 2008 was 41.2%, essentially unchanged from the 41.1% gross margin realized in the first quarter of 2008, but a significant increase over the 34.8% gross margin realized in the second quarter of fiscal 2007. The gross profit margin improvement from last year's second quarter resulted from DHA productivity gains at Martek's manufacturing facilities, as well as reductions in ARA costs. Contract manufacturing gross margins were slightly lower than anticipated, but Martek believes that such margins will improve in the third quarter and contract manufacturing margins for the full fiscal year 2008 will be between 5% and 10%.
Research and development expenses in the second quarter of fiscal 2008 were $6.8 million, or approximately 8% of revenue which is similar to prior year levels. The Company's research and development efforts continue to focus on developing new food and beverage applications for life'sDHA(TM), broadening the scientific evidence supporting the benefits of life'sDHA(TM) throughout life, improving manufacturing processes and developing new products to expand the Company's market offerings. In the future, the Company expects to experience quarter-to-quarter fluctuations in research and development expenses primarily due to the timing of outside services, including third-party clinical trial services. The Company anticipates that its research and development spend for the full fiscal year 2008 will also approximate 8% of revenue.
During the second quarter of fiscal 2008, selling, general and administrative expenses were $14.2 million, within the range of the second quarter estimates previously provided. As a percentage of revenue, the Company's selling, general and administrative expenses were 15.7%, consistent with the first quarter. For the full fiscal year 2008, the Company expects S,G & A as a percentage of revenue to be near 16%, compared to 14.6% in fiscal 2007. The spending increase from fiscal 2007 relates primarily to the Company's continued investment in new personnel required to support growth, expansion of marketing efforts designed to increase sales in both infant formula and non-infant formula markets as well as projected increases in the variable component of Company-wide compensation resulting from Martek's improved overall financial performance.
For the six months ended April 30, 2008, the Company generated $38.8 million of cash from operating activities with the second quarter providing $23.6 million of this total primarily through strong profits. At the end of the quarter, Martek had $44.7 million in cash and cash equivalents and had the entire balance of its long-term revolving credit facility ($135 million) available for future borrowing. Excluded from the Company's cash balance at quarter-end are "AAA" rated, long-term auction rate security investments valued at $14.7 million. During the second quarter, Martek recorded an approximately $800,000 unrealized loss on such investments in other comprehensive income reflecting the decline, which is expected to be temporary, in the estimated fair value of these securities due primarily to lack of current liquidity.
Inventory levels are approximately $3 million higher than amounts at October 31, 2007 due to the timing of the Company's ARA purchases from DSM, Martek's ARA supplier. The Company anticipates that overall inventory levels at year-end will ultimately be lower than such prior year-end amounts, further contributing to the projected improved cash flow generation during the second half of fiscal 2008.
As previously discussed by the Company, revenue for the third quarter of fiscal 2008 is expected to be lower than that for the second quarter of fiscal 2008 due to the production timing and related product ordering patterns of several large customers. Accordingly, Martek expects total revenues for the third quarter of fiscal 2008 to be between $85 million and $88 million. Third quarter infant formula revenue is projected to be between $71 million and $73 million; third quarter non-infant formula nutritional revenue is projected to be between $9 million and $10 million and third quarter contract manufacturing revenue is projected to be between $3.5 million and $4 million. Net income for the third quarter is projected to be between $7.6 million and $8.3 million, and diluted earnings per share are projected to be between $0.23 and $0.25.
Third quarter gross margin is expected to be approximately 41% with some improvement expected in the fourth quarter.
For the full fiscal year 2008, the Company expects revenues to be between $344 million and $350 million, a projected increase over fiscal 2007 of between 12% and 14%, with growth coming from all major product markets, including infant formula revenue where growth from the prior year is expected to be between 9% and 11%, slightly higher than previously estimated. Net income for the full fiscal year 2008 is projected to be between $33.6 million and $35.0 million, and diluted earnings per share are projected to be between $1.01 and $1.05.
Investor Conference Call Webcast
Martek will host a conference call and Webcast for investors to review its second quarter results and fiscal 2008 outlook at 4:45 p.m. Eastern Time on Wednesday, June 4, 2008. Access to the live audio Webcast is available through Martek's website athttp://investors.martek.com. The webcast will be available for replay through the close of business on July 4, 2008.
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 and food and beverage markets; (2) its expectations regarding revenues, profitability, cash flows from operations and changes in inventory levels during fiscal 2008; (3) statements regarding specific revenue, gross margin, operating expense and income expectations for the third quarter of and full year fiscal 2008; and (4) its expectations regarding launches by customers of products containing Martek's life'sDHA(TM). 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, 2007 and other filed reports on Form 10-K, Form 10-Q and Form 8-K.
Martek Biosciences Corporation (Nasdaq: MATK) 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.
SOURCE Martek Biosciences Corporation