Martek Biosciences Corporation (MATK) Announces Fourth Quarter and FY 2010 Financial Results
12/9/2010 7:52:04 AM
COLUMBIA, Md., Dec. 8, 2010 /PRNewswire-FirstCall/ -- Martek Biosciences Corporation (Nasdaq: MATK) today announced its financial results for the fourth quarter and fiscal year ended October 31, 2010. Total revenues for the fourth quarter were $119.1 million, up 36% from the fourth quarter of fiscal 2009. Fourth quarter non-GAAP earnings per share (EPS) were $0.41, a 24% increase from $0.33 per diluted share in last year's fourth quarter. For the full year 2010, revenues increased 30% to $450.0 million, and full year non-GAAP EPS were $1.55, an increase of 27% versus 2009. Non-GAAP EPS for the fourth quarter and full year 2010 exclude, for the applicable periods, certain acquisition and restructuring charges (see Table II "Reconciliation of GAAP to Non-GAAP Net Income Measure" below). On a GAAP basis, earnings (loss) per share were ($0.18) and $0.83 for the fourth quarter and full year 2010, respectively. Revenue and earnings for the fourth quarter include the results of Amerifit Brands ("Amerifit" or "branded consumer health products"), and revenue and earnings for the full year fiscal 2010 include the results of Amerifit since the February 12, 2010 date of acquisition by Martek.
Commenting on the quarter and year, Chief Executive Officer Steve Dubin said, "Martek's fourth quarter came in at the high end of our expectations and concluded a year of many accomplishments for Martek. Revenue grew across all business segments in 2010, our core infant formula ingredients business was strengthened through the extension of the terms of two of our key infant formula sole source supply agreements, and significant improvements on the operational side of the business were implemented which helped drive growth in both margins and income. In addition, we expanded our business platform through the acquisition of Amerifit, and made significant progress on our product and technology pipeline, both of which provide Martek with exciting opportunities for future growth."
Product sales in the fourth quarter of fiscal 2010 grew to $117.6 million, up 44% as compared to the fourth quarter of fiscal 2009. For the full year 2010, product sales increased 32% from full year 2009, to $434.8 million. Fourth quarter and full year 2010 growth was attributable to our sales of branded consumer health products resulting from our acquisition of Amerifit in 2010, as well as increased sales of our nutritional ingredients in both the infant formula and non-infant formula markets. Fourth quarter infant formula sales growth resulted primarily from increased sales of ARA and DHA for use in international markets and, to a lesser extent, from certain non-recurring stocking orders in the United States.
A breakdown of product sales by market for the fourth quarter and fiscal year periods (in thousands) follows:
Three months ended
Twelve months ended
Food and beverage
Pregnancy and nursing, nutritional
supplements and animal nutrition
Total nutritional ingredients
Branded consumer health products
Total product sales
Contract manufacturing and services revenue totaled $1.5 million and $15.3 million for the fourth quarter and full year 2010, respectively, of which $1.0 million and $4.1 million, respectively, was recognized in connection with the Company's ongoing joint development agreement with a subsidiary of BP p.l.c. ("BP") for production of microbial oils for use as biofuels. Consistent with previous disclosures, as of October 31, 2010, we have effectively ceased all contract manufacturing activities.
Gross Margin and Operating Expenses
Overall gross margin for the fourth quarter of fiscal 2010 was 52%, an increase over the 44% gross margin realized in the fourth quarter of fiscal 2009. For the full year 2010, gross margin was 48%, an increase from the 43% gross margin realized for the full year 2009. Gross margin improvements were largely due to both ARA and DHA cost reductions and the positive impact of higher gross margins on sales of branded consumer health products.
Research and development (R&D) expenses for the fourth quarter of fiscal 2010 were $9.2 million, or 8% of sales, consistent with previously stated guidance. R&D expenses for the full year increased to $33.6 million, up from $27.4 million in fiscal 2009. R&D continues to focus on broadening the market applications for life'sDHA through new product and process innovations, as well as leveraging the Company's microbial technology platform to develop new product offerings for its core nutritional markets and new high-value opportunities beyond nutrition.
Selling, general and administrative (SG&A) expenses for the fourth quarter of fiscal 2010 were $21.6 million, or 18% of sales, consistent with prior guidance. Full year SG&A expenses increased to $71.2 million, or 16% of sales. Year-to-year increases in fourth quarter and full year 2010 SG&A expenses are attributable to incremental expenses associated with Amerifit, and to a lesser extent, increases in the variable component of Company-wide compensation resulting from Martek's improved overall financial performance.
Advertising and promotion (A&P) spending totaled $4.2 million, or 4% of revenue, and $14.3 million, or 3% of revenue, for the fourth quarter and full year 2010, respectively. The increase in A&P as compared to 2009 is primarily attributable to increased spending in support of branded consumer health product sales as a result of the acquisition of Amerifit.
Liquidity and Capital Resources
The Company generated cash flow from operations of $46.3 million and $146.0 million, respectively, for the fourth quarter and full year 2010. Martek ended fiscal 2010 with a cash balance of $63.7 million, essentially no debt, and its entire $100 million credit line available since paying off the $86 million of acquisition-related debt in the third quarter of 2010.
Winchester Plant Restructuring and Sale
In November 2010, we completed the previously announced sale of a significant portion of the assets at our Winchester, KY manufacturing facility in an effort to streamline operations, improve capacity utilization, and reduce manufacturing costs and operating expenses. As part of the restructuring, Martek also transferred certain manufacturing and distribution processes previously performed at our Winchester, KY site to our Kingstree, SC site. As a result of the restructuring and sale, consistent with previous disclosures, the Company recorded total restructuring charges of $30.7 million in the fourth quarter of fiscal 2010, comprised of a non-cash asset impairment charge of $29.2 million and cash charges for employee separation and other costs of $1.5 million. As previously disclosed, restructuring related cash charges for employee separation and other costs of approximately $600,000 were also recorded in the third quarter of fiscal 2010.
Significant Recent Events
- Extended Global Sole-Source Supply Agreement In December 2010, Martek extended its global sole-source DHA and ARA supply agreement with a major infant formula customer. With the signing of this agreement, customers representing a total of 52% and 44% of Martek's current infant formula sales are now under contract through at least 2014 and 2015, respectively.
- New Scientific Data/Recommendations Publi