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Martek Biosciences Corporation (MATK)

Q4 2009 Earnings Call

December 16, 2009 4:45 pm ET

Executives

Steve Dubin – CEO

Peter Buzy - CFO

Analysts

Tim Ramey - D.A. Davidson & Co.

Chris Krueger - Northland Securities

Dalton Chandler - Needham

Pamela Bassett - Cantor Fitzgerald

Scott Van Winkle - Canaccord Adams

Nick Genova – B. Riley

Daniel Walker – Kalmar Investments


Presentation

Operator

Welcome to the Martek Biosciences fourth quarter 2009 earnings results conference call. (Operator Instructions) It is now my pleasure to turn the conference over to Mr. Peter Buzy, Chief Financial Officer; please go ahead sir.

Peter Buzy

Good afternoon and welcome to Martek’s fourth quarter fiscal 2009 conference call. First I would like to start the call off with our Safe Harbor statement, and then I will turn the call over to Steve Dubin, Martek’s Chief Executive Officer.

Our call today will contain forward-looking statements concerning, among other things, expectations regarding production timing of customers and third party suppliers, customer demand, customer inventory levels including de-stocking, product launches, and general economic conditions, as well as cash flows from operations, inventory levels, production costs, purchase costs, and specific revenue, gross margin, expense, and income expectations for future periods, in addition to potential M&A activity and any forward-looking statements contained in the Safe Harbor section of today’s earnings release.

These statements are based upon numerous assumptions that 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 set forth in connection with the company’s filings with the Securities and Exchange Commission.

With that, I’ll turn it over to Steve Dubin.

Steve Dubin

Thank you Peter, Martek turned in a solid 2009 financial performance despite the economy and we made significant progress in a number of fronts during the year. Sales of oil for infant formulas were most effected by the economy. Sales for use in infant formulas were down $15 million or 5% from 2008, the result of inventory de-stocking by retailers and our customers and a declining birth rate in the US.

International sales for oils for use in formula grew but at a slower than anticipated pace because some consumers when facing a tough economy opted for lower cost formulas that did not contain our DHA and ARA.

Sales of DHA outside of infant formula grew by a strong 27% despite the tough economy to close to $40 million for the year which is the reflection of the high quality of Martek’s products and the desire of consumers to improve their health and well-being even in times of economic uncertainty.

Each of our non-infant formula product categories increased in 2009. Sales for animal feeds applications increased by 50%, DHA for pregnancy and nursing applications increased by 49%, sales for supplements use increased by 17%, and food and beverage sales increased by 3%.

We also increased our gross margin by 200 basis points during the year and improved our EPS by 12% over the previous year. In addition a number of our 2009 accomplishments while having only minimal financial impact in 2009, should provide future financial benefits to us.

We signed 10 new infant formula agreements and began selling our oil to 13 new infant formula customers in 2009. We gained additional mass-market distribution for our supplements, grew our international presence, and gained additional [inaudible] regulatory approval for food and beverages.

Our pipeline of potential new food and beverage business became more robust and is expected to start flowing again in 2010. We signed up a number of new customers that are expected to launch new products over the next six months. For example in November of 2009 we entered into and agreement to provide our life'sDHA to a major Asia based food and beverage company.

This new agreement includes a purchase guarantee in excess of $10 million over the first 24 months following their initial product launch which is expected to take place in the first or second quarter of 2010.

We made progress along with our partners on new DHA delivery forms including gummies, emulsions, and powders that should enable more of our customers to incorporate our DHA into a wider variety of their products more easily.

The science behind the benefits of DHA consumption continue to grow stronger through the announced results of a number of studies including a Martek sponsored trial in healthy adults over the age of 55 who are experiencing memory complaints.

The study showed an improvement in learning and memory in the DHA consuming group. Significant progress was also made on our pipeline of new products and technologies. I believe that Martek is much more technology rich than the market appreciates. In order to give shareholders greater visibility into our capabilities we will soon unveil some of the exciting new products and technologies that have been generated from our microbial biotechnology platform and on which we have been quietly working over the past few years.

This same technology base or research engine that was responsible for our current DHA and ARA products, has been enhanced in recent years and has generated a significant pipeline of new opportunities.

We spoke about our new lower cost DHA brand for infant formulas that’s in development and we announced our collaboration with BP on bio fuels in August. We will be holding an analyst day in early February to tell you more about both of these opportunities, our research engine, and the other opportunities in our pipeline that I believe will help drive our future growth. We’ll be providing additional detail regarding date and location for the analyst day in the near future.

Read the rest of this transcript for free on seekingalpha.com