Martek Biosciences Corporation F4Q08 (Qtr End 10/31/08) Earnings Call Transcript

Martek Biosciences Corporation (MATK)

F4Q08 Earnings Call

December 11, 2008 4:45 pm ET

Executives

Peter Buzy – Chief Financial Officer

Steve Dubin – Chief Executive Officer

Analysts

Scott Van Winkle – Canaccord Adams

Dalton Chandler – Needham and Company

Tim Ramey – DA Davidson and Company

Dana Walker – Kalmar Investments

Presentation

Operator

Ladies and gentlemen, welcome to the fourth quarter earnings release conference call. (Operator Instructions) As a reminder, this conference is being recorded Thursday, December 11, 2008. It is now my pleasure to turn the conference over to Peter Buzy, Chief Financial Officer.

Peter Buzy

Good afternoon, and welcome to Martek’s fourth quarter fiscal 2008 conference call. First, I would like to start the call off with our safe harbour statement. Then, I’ll turn the call over to Steve Dubin, Martek’s CEO. Our call today will contain forwarding-looking statements concerning, among other things, expectations regarding production timing of customer and third party suppliers, customer mix, product mix, customer demand, product launches, and general economic conditions as well as Martek’s revenues, profitability growth, cash flows from operations, inventory level, and production and purchase cost, specific revenue, gross margin, expense, and income expectations for future periods as well as any forwarding-looking statements contained in the safe harbour section of today’s earnings release. These statements are based upon on 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 set forth in connection with the company’s filing with the Securities and Exchange Commission. With that, I’ll turn it over to Steve Dubin.

Steve Dubin

At the beginning of 2008, we told you our goals were to increase earnings through a combination of growing revenues and working to lower the cost of manufacturing our products, and at the same time, we wanted to work on new products for future growth. Our plan was to increase our revenues through growing our infant formula business especially in markets outside of the US, and through further expanding our DHA business and markets other than in infant formula. We said we’d grow our non-infant formula DHA business through continuing to build our life’s DHA brand by entering into agreements with more market-leading companies that can complement Martek’s programs to both educate consumers and drive awareness about the lifetime benefits of consuming DHA, getting mainstream retail distribution of supplements and perinatal products containing life’sDHA and making it easier for our customers to add our DHA into a broader array of food and beverage products. We also said we plan to do a better job of building our supplements perinatal and food and beverage businesses overseas.

I think our 2008 financial results reflect the success we have had in meeting these 2008 goals. Our 2008 accomplishments included the following: We increased revenues by 15%, gross margins grew from 37% in 2007 to 41% in 2008 despite incurring increased utility and raw material costs. Earnings per share grew by 63% before the effect of one-time tax benefits in both years and restructuring expenses in 2007. Cash flow from operations more than doubled to $107 million. Infant formula sales grew by 13%, driven by greater penetration of international markets. We signed multiyear sole-source supply agreements with eight additional infant formula companies including Numico, a wholly owned subsidiary of Danone and a leading worldwide producer of infant formula products. These agreements raised a percentage of our current business under such sole-source supply agreements from 67% at the beginning of the year to 80% today.

Sales of non-infant formula DHA grew by 36% to $31 million despite a challenging economic environment. Martek’s customers launched 78 new non-infant formula products with our life’sDHA including a number of international markets versus 47 in 2007. The categories of food and beverage products containing life’sDHA were broadened to include cheese, cooking oils, bread, frozen foods, smoothies, and meat alternatives, and we achieved mass market distribution of our life’sDHA supplements in a number of leading retailers including the two largest drug store chains in the US, CVS and Walgreen’s, so you can understand that I feel great about the year we had in 2008, but we will not rest on our past accomplishments.

The year 2009 will be challenging year. No one yet knows the extent of the economic downturn, but I think it’s safe to say that our non-infant formula business will be impacted as customer spending declines. That being said, we are expecting growth in revenues and profitability in 2009, driven by growing consumer awareness and the health benefits provided by DHA and the importance of DHA and arachidonic acid for infant development.

In 2009, we plan to focus on growing the international portion of our infant formula business and growing our non-infant formula business in both the US and abroad through continuing to build our brand and consumer awareness and by providing our customers with new solutions to meet more of their formulation requirements. We will continue to focus on reducing our manufacturing costs while maintaining our leadership in producing high-quality products. We will also continue our efforts to develop new products for future growth and to add to the body of evidence supporting the lifetime health benefits of DHA.

So while 2009 will test us, our strong core infant formula business which is recession resistant, our marquee customer base, our strong balance sheet with over $100 million in cash and cash equivalents and virtually no debt, our skilled and dedicated people, and the growing awareness of the lifetime health benefits provided by DHA consumption should put us in a good position to continue to grow in 2009. So, Pete is going to now give you some more details on our financial results, and then we’d be happy to entertain your questions.

Peter Buzy

Martek finished the year in a strong position with over $100 million in cash, lower inventory, and virtually no debt. Revenue and earnings were at the high end of our expectations, and we saw full year EPS break $1 per share and operating cash flows break $100 million for the first time in Martek’s history. Infant formula sales met the high end of our expectations, at $77.3 million, pushing annual growth in this category to 13% over 2007.

While we cannot ascertain precisely into which markets our oils are ultimately sold, we estimate today that 90% of the annual growth in infant formula sales this past year was due to shipments to international markets. The split of domestic versus international shipments varies from quarter to quarter but is currently tracking near 50-50. Non-infant formula nutritional sales increased 7% over the third quarter, actually at the low end of our guidance range for the quarter. Despite the challenging economic environment, for the full year, food and beverage-related sales increased 90% over 2007 while sales to nutritional markets including pregnancy and nursing, nutritional supplements, and animal feeds increased 20%. Together, these sales provided $8.3 million of incremental growth for Martek during fiscal 2008.

Gross margins of 41.3 for the quarter and for the year came in as expected. This represents an increase of 430 basis points over the 37% gross margin reported in 2007. These improvements were due to lower costs of both DHA and ARA. DHA costs have decreased as a result of production process yield and increases in plant utilization which have offset increases in utility costs and raw materials over the prior year. Better pricing on ARA during fiscal 2008 has offset pressure from the euro-dollar exchange rate. We anticipate additional improvement to gross margin in fiscal 2009 primarily due to continued production yield and slightly higher volumes of both ARA and DHA.

R&D as a percentage of revenue was 7.9% for the fourth quarter and 7.4% for the year, in line with our expectation. The increase over the third quarter was due to the timing of spending on clinical studies to outside services. Martek R&D efforts continue to focus on developing new food and beverage applications for life’sDHA, broadening the scientific evidence supporting the benefits of life’sDHA throughout life, improving manufacturing processes, and developing new products to expand our market offerings.

SG&A has a percentage of revenue came in line with expectations at 14.8% for the fourth quarter and 15.4% for the year. Fiscal 2008 was higher than 14.5% experienced in fiscal 2007 due to 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 an increase and the variable component of company-wide compensation resulting from Martek’s improved overall financial performance. We have the ability to adjust SG&A spending levels in response to projected success in the market place and financial performance of the company.

Non-GAAP earnings with exclude a one-time tax benefit were $0.27 for the fourth quarter and $1.09 for the year, reaching the high end of our previous guidance estimate. EPS has increased significantly over the prior year with a 17% increase over the fourth quarter 2007 and a 63% year over year increase. Cash from operations of $46 million in the fourth quarter was the highest ever reported by Martek and equal to cash from operations generated during the whole of fiscal 2007. Cash flow was positively impacted by lower inventory levels due to the timing of ARA production and related purchases from DSM as well as a decrease in accounts receivables of nearly $10 million.

Accounts receivables routinely fluctuate quarter to the quarter due to the unevenness of customer ordering patterns on a monthly basis. For example, third quarter shipments to customers were heaviest in the latter part of the third quarter which resulted in a higher receivables balance at the end of July and a corresponding higher cash receipt in the fourth quarter of fiscal 2008. Sales in the fourth quarter were more evenly distributed resulting in lower receivables and a DSO of 41 days. Martek’s DSO typically ranges between 43 and 48 days, but maybe higher or lower than this range in any given quarter. At the end of the year, Martek held nearly $103 million of cash and had the entire balance of our revolving credit facility of $135 million available for future borrowings.

Inventory decreased as expected to near $100 million at the end of the fiscal year. The decrease from the third quarter levels was due to lower production levels of DSM ARA due to an annual planned maintenance shutdown. At the end of October, inventory was comprised of $58 million of arachidonic asset, $17 million of DHA for infant formula use, $17 million of non-infant formula applications including food and beverage, nutritional supplements, and animal feed, and finally $8 million of raw materials and inventory related to contract manufacturing. We expect inventory to grow to be between $105 and $108 million in the first quarter of 2009 due to the timing of DSM ARA production and related shipments.

The composition of inventories between finished goods and work in process fluctuates quarter to quarter due to normal production cycles and a campaign nature of certain processes, particularly in regards to arachidonic acid. With inventory expected to increase and accounts receivable expected to return to a more normal level, first quarter 2009 cash from operations is expected to be substantially lower than the fourth quarter of 2008. For the first quarter, we expect revenues of between $86 and $89 million, slightly lower than the fourth quarter due to the timing of production campaigns by our infant formula licensees.

Historically, production timing of these customers varies quarter to quarter and in the short term does not reflect changes in demand from end customers. We expect infant formula sales of between $74 and $77 million, non-infant formula nutritional revenue of between $7 and $8.5 million, non-nutritional revenue of approximately $1.1 million, and contract manufacturing revenue of approximately $3 million.

Gross margin is expected to increase to near 42.5% in the first quarter, primarily as a result of new production of DHA for non-infant formula application and continued improvement in overall cost structure. Net income is expected to be between $8.7 and 9.7 million, and diluted earnings per share between $0.27 and $0.29 on weighted average shares outstanding of approximately 33.5 million.

Although we will not be providing specific annual guidance for 2009, we have the following comments about 2009. On a year over year basis, we anticipate moderate growth of both revenues and profitability over 2008, with profitability growing at a faster rate than revenues primarily due to improvements in gross profit margins. We expect growth in infant formula revenue, primarily from international sales, and growth in non-infant formula sales, primarily from new launches, many of which are currently in development. We plan to decrease contract manufacturing activities in the second half of the year, and we’ll focus our manufacturing efforts on our core nutritional products. By 2010, we expect contract manufacturing revenues to be less than $5 million.

Deteriorating economy conditions could impact our expectations regarding revenue and profitability, particularly as it relates to new product launches for non-infant formula products. To date, we have not seen economic conditions impact sales of products from infant formula applications, and while we have continued to see growth among non-infant formula products, we believe that fiscal 2008 growth was lower than it would have been under a stronger economic environment.

As noted in our Q1 fiscal 2009 guidance, we should begin the year with a gross profit margin of near 42.5%, and we anticipate additional improvement during the year. This growth is expected to come as a result of lower ARA cost and a decrease in the average cost of inventory for DHA for non-infant formula applications due to continued efficiencies and increased production level.

As a percentage of revenues, SG&A is expected to remain consistent with fiscal 2008, while R&D is expected to increase as a result of increases in clinical study, personnel, and contract services for the purposes of application development and process improvements. However, we have the ability to manage the anticipated growth based upon the projected success and financial performance of the company. Meaningful improvement to our bottomline remains a priority.

While we expect improved revenues and increased profitability on a year over year basis, we may not have sequential growth in revenue and earnings due to customer ordering patterns in both our core infant formula business and our non-infant formula markets. Quarter to quarter revenue variability could be in the $2- to $4-million range. We are realizing the leverage in our business model with meaningful 2008 profits and cash from operations over $100 million. Fiscal 200 cash from operations is expected to be similar to 2008 levels. We are currently not paying cash for essentially all of our income tax expense due to the large amount of net operating losses that we have accumulated in prior years. We expect to use these NOLs and become a cash taxpayer in the 2011 timeframe which will impact operating cash flows at that time.

In summary, we expect 2009 to be another year of growth in revenues and profitability as we build off the successes of 2008. Before I open the call to questions, I want to state that we will not be able to answer any specific questions regarding our customers, their products, or their product launches due to confidentiality agreements. We can, however, address questions regarding the sale of our oils for use in these products and related trends and expectations. With that, we will open up for calls.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Scott Van Winkle of Canaccord Adams.

Scott Van Winkle – Canaccord Adams

Pete, what was the other expense number? That was a little higher than I expected in the fourth quarter.

Peter Buzy

Other expense includes some startup from qualifying third party manufacturers and then some internal startup as well. That was $500,000 from Q3.

Scott Van Winkle – Canaccord Adams

Did you move around some processes or something during the quarter?

Peter Buzy

We started up some processes, so we were bringing in existing equipment online, so there was some startup associated with that, and then it was also some startup as well as some third party costs that was expensed in that line item.

Scott Van Winkle – Canaccord Adams

What do you do from a third party standpoint on the manufacturing process now?

Peter Buzy

Very little, and most of that relates to some product development activity. We’re using one of the processing steps with third party, but in general, most of that is within Martak.

Scott Van Winkle – Canaccord Adams

The gross margin, you talked it being up year over year, but sequentially a little lower. Can you give a little color there?

Peter Buzy

It came in just a tad below Q3, and part of that just relates to the overall customer mix of products. From our standpoint, it’s tracking fairly close to where we anticipated it would be. I think on the positive side we do see what should be near 100% basis improvement in the first quarter.

Scott Van Winkle – Canaccord Adams

You mentioned the mix of business with less percentage of revenue coming from non-infant formula stuff, as I assume that is what you’re referring to, but as you go into the next quarter, I assume that mix is still going to be relatively the same. You’re talking about a little economic impact on the non-formula stuff. I’m wondering how we get the incremental 100 basis on a sequential basis.

Peter Buzy

The mix of infant formula customers impacts margins slightly, and then the other piece is that we do have FIFO accounting inventory, so we have lower cost inventory on our balance sheet today, and that will start to come through cost of sales in the first quarter.

Scott Van Winkle – Canaccord Adams

I got it. If we’re looking at the currency impact, $58 million of archidonic acid, that is probably less than 6 months inventory, maybe 4 months’ inventory?

Peter Buzy

It’s between 4 and 6 months’ inventory. The currently impact, it will be in the second half of fiscal 2009 that we will start to see some impact.

Operator

Our next question comes from the line of Dalton Chandler with Needham and Company.

Dalton Chandler – Needham and Company

I just wanted to ask about food and beverage. It was a little weak last quarter. It did improve some, but didn’t get back to where it had been. Is there something that you’re seeing there that’s driving the cautious tone that you’re taking for your ’09 guidance?

Peter Buzy

When you see some of these ups and downs and we’re still fairly early stage in the business, you’re seeing some stocking orders going through from time to time, so if you’re launching in Walgreen’s for instance, they’re buying a bunch of stock to shelves and that’s going to flow through the income statement at the time they place the order, so a lot of the variability is due to those kinds of things. In general, we’re seeing some slowing of product launches. We addressed that, I think, on the third quarter call, but the products that are out there today, everything we’re hearing is that most of them are doing very well, and we do anticipate additional launches over the next 12 months.

Dalton Chandler – Needham and Company

So, on balance, you would expect to see that number continue to grow a little bit, you think?

Peter Buzy

We’re expecting growth during 2009. Again, you’ll still have some quarter to quarter variability, but overall we’re expecting growth in both the infant formula and non-infant formula parts of the business.

Dalton Chandler – Needham and Company

Just to come back to the nearly 100 basis points jump in the gross margin, I know you said you had some mix issues and so forth this quarter, but that’s still a pretty big jump. Is there something else beyond that and beyond the lower cost ARA that’s driving that?

Peter Buzy

It’s also that the DHA continues to come down. We do not make much of the DHA refuse for food products for capsules and animal feed. We did not make much of that during 2008. We made more of it in the fourth quarter, but that unit cost continues to move down pretty substantially.

Dalton Chandler – Needham and Company

I know you made your comments about the cash taxes, but as far as the GAAP tax rates, what should we expect for the year?

Peter Buzy

Right now, using about a 37% tax effective rate, we think, is reasonable.

Operator

Our next question comes from the line of Tim Ramey with DA Davidson and Company.

Tim Ramey – DA Davidson and Company

I’m not attributing to any one customer, but in general can you help us get a little smarter on how economically sensitive, if at all, infant formula is? I don’t really know the answer to that. I’d like to hear any wisdom you have.

Steve Dubin

We’ve looked at some data going all the way back to 1930 trying to correlate economic downturns with the purchase of infant formula. If you look at the graphs of economic activity versus the graph of infant formula, they’re all up and down, but not at the same time necessarily, so we haven’t seen a clear correlation. I mean we’re hearing some reports of potentially people shifting from some of the name brands to some of the store brands, but we don’t see a very dramatic shift at least from our perspective so far, but all of the brands have our stuff in it, so if that takes place, we’re still going to get the order. So we just haven’t seen much up to this point in time.

Tim Ramey – DA Davidson and Company

But the sense is that the food products are more premium priced or maybe just food activity, new product activity slows overall?

Steve Dubin

I think the non-infant formula business is going to be more sensitive to economic changes because infant formula is a necessity, and some of these other things are not necessarily necessities, so I think as I mentioned on the last call, companies are a little more reluctant to launch products during bad times, although as you have seen, we have had new products coming out, and we will have new products coming out. There are a lot of things in the pipeline that will come out in 2009, but I think there’ll be more if we hadn’t had the economic downturn. I like the position we are in. I think we feel really good about where we are. Would it be better if the economy was better? Yes, it would be, but we’re still doing, I think, pretty well.

Tim Ramey – DA Davidson and Company

Has there been any impact on end-market sales of infant formula from either the Chinese scare or that news report from the FDA counting the minuscule amounts of melamine here?

Steve Dubin

We don’t have the data since that last scare, but we haven’t anecdotally heard of anything. As far as the Chinese situation, if anything, we’ve had maybe a couple of small extra orders as some of the Western company sales have increased somewhat in China, but we haven’t detected a big shift in any geographical location at this point in time.

Operator

Our next question comes from the line of Dana Walker with Kalmar Investments.

Dana Walker – Kalmar Investments

Could you address if there were Walgreen or CVS stocking orders? Have we seen those yet in your non-IF business?

Peter Buzy

Yes, they are already on the shelves, so they are already in there, but none of these are huge numbers. So all I’m saying is, when you are in the startup phase of the business or you’re starting to get more and more customers, you’re going to have some of these lumps going through. You have to look at the trend over a year period of time, and that’s fairly consistent with what we’ve been saying.

Dana Walker – Kalmar Investments

Are you willing to venture an estimate as to what a low end versus a high-end opportunity for non-IF growth might look like in ’09, or would you prefer to be less specific at the present?

Peter Buzy

One specific product?

Dana Walker – Kalmar Investments

No, for the category.

Peter Buzy

Right now, we’re just sticking with what we have in the script. A couple of years ago, we set a policy of growing a quarter at a time, and we’re just going to stick to that policy.

Dana Walker – Kalmar Investments

Pete or Steve, what role with inventory coming down as sharply as it did in Q4, you received several questions about your gross margin and why you might improve? When manufacturing-based businesses bring down inventory sharply, quite often it has a negative gross margin effect, and yet you attributed most of the decline to DSM. Would gross margins have been better in Q4 if you had less inventory than where it was?

Peter Buzy

I don’t think it played any role at all in the gross margin.

Steve Dubin

What’s happening is basically over time our costs have come down in terms of our production costs, both the amount that we’re buying the ARA, the price that we purchase from DSM, our own cost of manufacturing our DHA for infant formula, and our DHA for foods—they have all come down because of efficiencies and utilization and negotiated prices. In the case of infant formula, we’ve had roughly 6 months of inventory in those products, and in the food products, we’ve had more than that. So once we’ve had the cost improvement, it takes a while to work through inventory, and what you’re seeing is some of this older, higher-priced inventory is starting to get out of the picture, and the stuff that’s on the balance sheet, as Pete said, was produced at a lower cost. It’s a fairly dramatic decrease quarter to quarter, but that relates primarily to the timing of orders of ARA.

Dana Walker – Kalmar Investments

Given that you’ve gone to a longer term arrangement with two additional IF customers here more recently, what implications might that have for gross margin and pricing of product?

Peter Buzy

On all of our longer term agreements, we have some pricing flexibility. What we’ve done is in exchange for long-term agreement, there are some ground rules for increasing prices, but today in the current economic situation, we haven’t raised prices this year, and we have a slight increase last year, and we’ll just keep watching and see what to do.

Dana Walker – Kalmar Investments

Given what we’re seeing where T-bills are returning either nil or mildly negative returns, what types of return on cash should a shareholder expect at Martek? You have over $100 million of it.

Peter Buzy

Right now, we’re being very conservative in connection where we put our cash, and right now on a percentage basis, I’d say it’s going to be at 1% to 1.5%.

Operator

(Operator instructions) Our next question is a followup question from the line of Scott Van Winkle with Canaccord Adams.

Scott Van Winkle – Canaccord Adams

Deana touched on the subject I wanted to ask about, and that is cash utilization. Are you being conservative, obviously conservative about how you invest the money, but conservative with how you deploy the cash in any of the ways you have ahead of you? Are you doing that because of the economic situation? Are you doing that because it’s still a relatively new feeling to have net cash on the balance sheet or is it a function of the cash flow won’t be as strong in a few years when have you’ve gone through the NOL benefit?

Steve Dubin

I’ll let Pete answer part of the question, but I think we’ve been very conservative in past two years with cash and paying of debt, and I think it’s served us very well, and I’ll let Pete talk about what we’ll do in the future.

Peter Buzy

In the current economic environment, having more cash than not right now is a good thing, and it doesn’t relate to what our future cash flow projections are. We will start paying taxes in a number of years, but if we are successful in executing, we’ll be making a lot more money then as well, but for right now, I think we are going to take a lot of time in this market place before we deploy cash in any direction.

Scott Van Winkle – Canaccord Adams

Steve, you know the formula business in the US launched in a big way 5 or 6 years ago, and then a couple of years after that, you saw the pregnant nursing supplement take off with Expecta LIPIL and some others, and now you are in some multi prenatal vitamins. Are we going to see the same phenomenon occur internationally, Asia in particular? Is the introduction into formula followed a few years later by the ingredients going into multivitamins for pregnant nursing or specific supplements for pregnant nursing?

Steven Dubin

Some of that is already existing. We don’t break it out too much, but we products in Asia already for perinatal, and there is more on the way, but in terms of the market itself and the uptake and the economic strata, the people in the various markets obviously is different than the US, but we do see the same desires to have a healthy kid and a healthy pregnancy, and I think that bodes well for our product.

Scott Van Winkle – Canaccord Adams

And are those products marketed by the same companies that market infant formula in those markets?

Steven Dubin

Sometimes yes, sometimes no. Mostly no, I would say.

Operator

Our next question comes from Dana Walker with Kalmar Investments. Please proceed with your question.

Dana Walker – Kalmar Investments

Are there any things pending on the science front, either with clinical trials that you control or others might control?

Steven Dubin

There’s a bunch of things by independent investigators, the timing of which I don’t have at the tip of my fingers, and we are not always apprised of that. We have our senior study that is wrapping up here pretty soon that I’m sure there will be some results sometime in 2009. I think the Alzheimer trial was, what’s that a 2010 thing, Pete? On our side, the two big ones are the senior trial, people 55 and older within the low range of normal, and then the NIH Alzheimer’s trial that will come out over the next two years, so there are a lot of other things going on, but some of our own trials will probably have a little bit longer timeframe. Some of the independent investigator ones, they are popping all the time.

Dana Walker – Kalmar Investments

Are these like pharmaceutical clinical trials where they are blinded and you don’t have any sense for how they are tracking, and there is really now way to make any statistical conclusions until they are over.

Steven Dubin

The Alzheimer is literally a pharmaceutical trial, and the 55 and older, I think there are about 450 people in it, and it’s blinded, so you just don’t know anything till you know.

Dana Walker – Kalmar Investments

Pete, the startup expenses and the third party expenses that we saw in Q4, are they likely to endure?

Peter Buzy

We will have some, but they should go down, and part of that is we bought on some additional fermentation in internal capacity and had some startup costs associated with that in the fourth quarter.

Dana Walker – Kalmar Investments

Final question relates to new formulations. You have been trying to expand the ways that you can provide DHA so that it’s more relevant to more types of food, whether they are shelf stable or not. What if any updates might there be there?

Steven Dubin

Well, I would expect continued broadening of the product base in 2009, and we’re working hard to either develop or acquire new technologies that would enable us to get into some of the problem formulation areas, so I would expect that you’ll hear us throughout the year with different things in that regard.

Dana Walker – Kalmar Investments

Is that sill a mystery as to outcome or is there an increasing sense of confidence that you’ve got certain prior hurdles linked?

Steve Dubin

I think we’ve linked a lot of hurdles in the past year by broadening the product base with the cooking oils and the breads and the tortillas that we recently launched and the cheeses. Those are all things that we were struggling with a year or two ago, so you don’t go from zero to 100. You have to tackle these different product opportunities and categories. They each have different issues. So I don’t see one magic bullet that’s going to solve very problem, but I think if you look at our pallet today, it has many more colors in it than it had a couple of years ago in terms of food applications.

Dana Walker – Kalmar Investments

If you were to single out one particular project that you believe is notable on that front, what would it be?

Steve Dubin

Well, the two biggest holes I think we have are long shelf-life dry type products and shelf stable beverages, so there are areas that we’re putting a lot of effort into right now.

Operator

Gentlemen, I’m showing no further questions at this time.

Steve Dubin

I appreciate everybody’s attention and the great questions this quarter, and we look forward to talking to you in 90 days and telling you about quarter #1 in 2009.

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