CHICAGO, Feb. 3, 2015 /PRNewswire/ -- The Female Health Company (NASDAQ - CM: FHCO), which manufactures and markets the FC2 Female Condom® (FC2), today reported its operating results for the quarter ended December 31, 2014 (first quarter of FY2015). The Company will host an investor conference call today at 11:00 a.m. Eastern Standard Time (EST) to discuss these results and other topics of interest (see details below).
Management Comments
“The Company sold 12.2 million FC2 Female Condoms in the first quarter of Fiscal 2015, generating $6.7 million in net revenues, with a gross profit margin of 57%, compared with 11.8 million units sold, $6.7 million in net revenues and a gross profit margin of 55% in the first quarter of Fiscal 2014,” stated Karen King, President and Chief Executive Officer of The Female Health Company “Unit sales in the most recent quarter were approximately 25% higher than in the fourth quarter of Fiscal 2014, when the Company sold 9.7 million units. In October 2014, we announced that the Company, through our distribution partner, Semina Industria E Comercio Ltda, was awarded a tender to provide up to 50 million FC2 Female Condoms to the Brazilian Ministry of Health (“MOH”) during Fiscal 2015. To date, the MOH has placed orders for 25 million units, the majority of which are anticipated to ship during the second quarter of Fiscal 2015. This order quantity represents the largest order amount in the Company’s history, an increase of 25% over the previous largest order.”
“The Company realized a healthy 22 percent operating profit margin during the three months ended December 31, 2014. At the end of the quarter, cash on hand totaled $4.6 million, our balance sheet remained debt-free, and shareholders’ equity approximated $29.3 million.”
“We are making solid progress on our new growth strategy, which is designed to grow our business while reducing the volatility in sales and earnings. Our efforts are focused on accelerating demand of FC2 by strengthening key customer relationships and creating greater awareness of the product in our current markets through more effective sales and marketing efforts. We are expanding our distribution channels and launching a new FHC direct online purchase option on our website. We have also conducted extensive market research with two consumer segments and, based on our findings, are refining our U.S. consumer strategy. In addition, we have some product line enhancements in development and have initiated an outreach effort that targets the community of medical service providers.”
“We continue to believe there is a compelling need for female condoms in the U.S., as the incidence of sexually transmitted infections remains alarmingly high at 20 million new cases every year, half of which involve young people in the 15-24 year age group.”
“The second element of our new strategy involves product diversification. While we are primarily focused on women’s reproductive and intimate health issues, we are examining opportunities across the spectrum of women’s health concerns. Our team has evaluated many businesses and products that are complementary to FC2 in terms of market segment, product category and/or channel presence. While we remain strongly committed to maximizing the market potential for FC2, we believe the Company can successfully mitigate the risks of being a single-product company, accelerate long-term revenue growth, improve the consistency of our results and enhance long-term shareholder value by investing in a portfolio of products,” concluded King.
First Quarter Results
Significant quarter-to-quarter variations in the Company’s operating results have historically resulted from the timing and shipment of large orders rather than from any fundamental changes in the business or the underlying demand for female condoms.
The Company generated net revenues of $6,659,206 and net income of $804,917, or $0.03 per diluted share, for the three months ended December 31, 2014, compared with net revenues of $6,690,195 and net income of $1,464,603, or $0.05 per diluted share, for the three months ended December 31, 2013.
Net revenues decreased $30,989 on a 3 percent increase in unit sales during the first quarter of FY2015, when compared with the same period last year. The FC2 average sales price per unit decreased 3.1 percent relative to the same period in FY2014 due to changes in sales mix.
Cost of sales decreased 6 percent to $2,839,533 in the three months ended December 31, 2014, from $3,011,701 in the prior-year period.
Gross profit increased 4 percent to $3,819,673 in the most recent quarter, versus $3,678,494 in the three months ended December 31, 2013. Gross profit margin for the three months ended December 31, 2014 improved to 57 percent of net revenues, compared with 55 percent of net revenues in the prior-year period. The increase reflects slightly higher material costs, which were more than offset by the favorable impact of currency exchange rates upon material purchases.
Operating expenses increased 13 percent to $2,365,824 for the three months ended December 31, 2014, compared with $2,094,858 in the prior-year period, primarily due to an increase in sales, marketing, training and education expenses. The majority of the increased spending involved payments to our Brazilian distributor for ongoing programming related to the 2012 tender and for marketing and management fees for the 2014 tender. Higher sales and marketing expenses also reflect the addition of an Executive Vice President of Sales and Marketing to the Company’s management team. All other headcount added to the sales and marketing team represents a redeployment of training and education resources and is therefore not an incremental expense.
Operating income for the three months ended December 31, 2014 totaled $1,453,849, versus operating income of $1,583,636 in the first quarter of FY2014, a decrease of approximately 8 percent. The decrease was primarily due to higher operating expenses partially offset by improved gross margins.
Interest and other income, net, for the three months ended December 31, 2014 totaled $652, an increase of $2,384 from the same period in FY2014, when interest and other expense, net, totaled $1,732. The Company recorded a foreign currency transaction gain of $20,846 in the most recent quarter, compared with a foreign currency transaction loss of $18,426 for the same period last year.
Income before income taxes decreased 6 percent to $1,475,347 in the most recent quarter, compared with income before income taxes of $1,563,478 in the first quarter of FY2014. Income before income taxes approximated 22 percent and 23 percent of net revenues for the quarters ended December 31, 2014 and 2013, respectively.
The Company recorded income tax expense for the three months ended December 31, 2014 of $670,430, an increase of $571,555 from the same period in FY2014, when income tax expense was $98,875. The increase was primarily due to the Company no longer recognizing an income tax benefit associated with reducing the Company’s valuation allowance on its deferred tax assets related to net operating loss carryforwards. During the period ended December 31, 2013, the valuation allowance on the Company’s deferred tax assets was fully realized and, as a result, the Company does not expect to recognize such tax benefits to any significant extent in its consolidated statements of income for periods after December 31, 2013.
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