CHICAGO, Dec. 2, 2014 /PRNewswire/ -- The Female Health Company (NASDAQ - CM: FHCO), which manufactures and markets the FC2 Female Condom® (FC2), today reported its financial results for the fourth quarter and fiscal year ended September 30, 2014. The Company will host an investor conference call today at 11:00 a.m. Eastern Standard Time (EST) to discuss these operating results and other topics of interest (see details below).
Management Comments
"The Company sold 42.5 million FC2 Female Condoms generating $24.5 million in revenues in Fiscal 2014, representing declines of 22% when compared with Fiscal 2013 results," stated Karen King, President and Chief Executive Officer of The Female Health Company. "The decrease in sales was due to the irregular purchasing patterns of our public sector customers which we do not believe reflects a change in the underlying demand for female condoms. As an example, one of our largest customers, the Brazilian Ministry of Health ("MOH") made no purchases in Fiscal 2014. However, in October 2014, we announced that the Company, through its distribution partner, Semina, was awarded a tender to provide up to 50 million female condoms to the Brazilian MOH during Fiscal 2015. The actual orders will be placed at the discretion of the MOH, and at its request may not be announced until after shipments have arrived in Brazil. We have commenced manufacturing under this tender and have added staff to our Malaysian operation to be prepared to manufacture and ship the Brazilian orders in a timely manner."
"Despite the reduction in unit sales, the Company realized a healthy 16 percent operating profit margin and we generated $3.7 million in positive cash flow from operations. As of September 30, 2014, cash on hand is $5.8 million after the payments of $6.1 million in dividends through May 2014, our balance sheet remained debt-free, and shareholders' equity approximated $28.1 million."
"In July 2014 the Company's Board of Directors approved a new growth strategy with two key elements designed to target new growth opportunities while reducing the volatility in sales and earnings that has characterized our financial performance to date. The first element seeks to accelerate demand of FC2 by strengthening key customer relationships and creating greater awareness of FC2 in our current markets through sales and marketing efforts. A portion of our training and education resources have been redeployed to support the sales and marketing activities. We are also examining the potential for FC2 in the U.S. consumer market. We believe there is a compelling need for female condoms in the U.S., as the incidence of sexually transmitted diseases is significantly rising, with about half of all new cases occurring in young people aged 15-24.
"The second element of our new strategy involves product diversification. We have been actively evaluating the potential acquisition of additional products, technologies and businesses 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 reduce 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.
Fourth Quarter Results
The Company's net revenues increased 16 percent to approximately $5.6 million in the three months ended September 30, 2014, compared with approximately $4.8 million in the fourth quarter of FY2013. The FC2 average unit sales price increased 0.3 percent in the fourth quarter of FY2014, when compared with the prior-year quarter, due to changes in sales mix.
A net loss of $(566,121), or $(0.02) per diluted share, was recorded in the three months ended September 30, 2014, versus net income of $6,590,172, or $0.23 per diluted share, for the three months ended September 30, 2013.
Cost of sales rose 6 percent, to $2,667,340 in the three months ended September 30, 2014, from $2,514,224 for the same period last year.
Gross profit increased 27 percent, to $2,886,773, equal to 52 percent of net revenues, in the fourth quarter of FY2014, from $2,274,963, equal to 48 percent of net revenues, in the prior-year quarter.
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.
Operating expenses increased to $3,369,350 for the three months ended September 30, 2014, from $532,983 in the prior-year period, primarily due to the reversal of accrued incentive compensation payments in the fourth quarter of FY2013 and payments in the fourth quarter of FY2014 to the Company's Brazilian distributor for programming related to the 2012 tender and for management services related to the recently announced 2014 tender.
Operating loss for the three months ended September 30, 2014, totaled $482,577, versus operating income of $1,741,980 in the fourth quarter of FY2013.
Interest and other income, net, for the three months ended September 30, 2014 increased to $11,124, compared with interest and other expense, net, of $30,421 for the same period in FY2013. The Company recorded a foreign currency transaction loss of $25,632 in the most recent quarter, compared with a foreign currency transaction loss of $1,115 for the same period in FY2013.
Income tax expense for the three months ended September 30, 2014 was $69,036, versus an income tax benefit of $4,879,728 for the same period in FY2013. The significant difference 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 year ended September 30, 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 September 30, 2013. However the Company's net operating loss carryforwards will be utilized to reduce cash payments for income taxes based on the statutory rate in effect at the time of such utilization.
Fiscal Year Results
The Company generated net revenues of $24.5 million in the fiscal year ended September 30, 2014, which represented a decrease of 22 percent when compared with net revenues of $31.5 million in the fiscal year ended September 30, 2013. The decline in net revenues was partially due to large shipments to Brazil in FY2013 that did not recur in FY2014. The FC2 average unit sales price increased 0.3 percent in FY2014 compared with the average unit sales price in FY2013.
Net income declined to $2,433,061, or $0.08 per diluted share, in the most recent fiscal year, versus net income of $14,342,598, or $0.50 per diluted share, in FY2013.
Cost of sales decreased 19 percent to $11,369,108 in FY2014, from $13,952,420 in FY2013. The decrease was primarily due to a reduction in material costs on lower unit sales, partially offset by increased costs of quality control testing, a net increase in rent due on a leased warehouse facility and an increase in insurance costs.
Gross profit decreased 25 percent to $13,121,478, or 54 percent of net revenues, in FY2014, versus $17,504,358, or 56 percent of net revenues, in FY2013.
Operating expenses increased 19 percent to $9,197,566 in FY2014, from $7,714,761 in FY2013.
Operating income for the fiscal year ended September 30, 2014 totaled $3,923,912, compared with operating income of $9,789,597 in the same period last year. The decrease was primarily due to lower unit sales and increased spending on sales, marketing, training and educational activities. The majority of such increased spending relates to payments to the Company's Brazilian distributor for programming related to the 2012 tender and for management services for the recently announced 2014 tender.
Interest and other income, net, for the fiscal year ended September 30, 2014 totaled $117,123, compared with interest and other income, net, of $245,545 in the previous fiscal year. The decrease was primarily due to the one-time distribution upon demutualization of an insurance carrier in FY2013. The Company recorded a foreign currency transaction loss of $83,844 in FY2014 and a foreign currency transaction loss of $101,288 in FY2013.
Income tax expense was $1,524,130 in FY2014, versus an income tax benefit of $4,408,744 in FY2013.
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