Matrixx Initiatives first-quarter net loss reduces to $2.4 million

Aug 4 2010

Matrixx Initiatives, Inc. (Nasdaq: MTXX), an over-the-counter healthcare company that develops and markets Zicam® products, today announced financial results for its fiscal first quarter ended June 30, 2010.  

For the fiscal first quarter ended June 30, 2010, the Company reported net sales of $3.2 million and a net loss of $2.4 million, or $(0.26) per diluted share. This compares to net sales of $6.9 million and a net loss of $22.8 million, or $(2.49) per diluted share, for the first quarter ended June 30, 2009. Last year's first quarter results included $2.0 million of sales of nasal Cold Remedy products, which were withdrawn from the market in June 2009, as well as charges of $32.9 million related to the recall and goodwill and asset impairments ($9.0 million for recall costs and $23.9 million of goodwill and asset impairments).

Bill Hemelt, President and Chief Executive Officer, said, "Sales in the fiscal first quarter are historically the lowest in the fiscal year. However, the quarter is a critical period for finalizing retail plans for the upcoming cold season and manufacturing new products to begin shipping in the fiscal second quarter. We began shipping our two new oral Cold Remedy products in July and significantly increased distribution of our Zicam Liqui-Loz Cold Remedy product for the upcoming cold season. We are pleased by customers' acceptance of these products. On average, our ten largest retail customers will have a net increase of oral Cold Remedy products on-shelf for this year's cold season. In addition, recent consumer consumption data comparing 4-week year-over-year trends following last year's withdrawal of our nasal Cold Remedy products, to the same period this year, shows growth of 5% for our oral Cold Remedy products and 7% for our allergy/congestion products. During our second quarter, we will be finalizing new oral Cold Remedy advertising, which we believe will help increase consumer awareness of our products' unique benefits. We are intent on growing sales of our nasal congestion products and are currently developing new advertising messaging for those products."

Mr. Hemelt continued, "Our overall litigation picture has become clearer and the process is moving quickly. The product lawsuits filed against the Company principally fall into two categories -- claims alleging our Zicam Cold Remedy nasal gel products caused loss of smell; and claims seeking compensation based on allegations that the Company misrepresented the safety and/or efficacy of our products. The majority of these cases fall into a multi-district litigation (MDL) process for which the judge has set a strict timetable for moving the cases forward. As previously reported, we are at the same time engaged in mediation with the paintiffs in an effort to settle the cases in order to avoid the costs and risks of litigation. However, if we are unable to resolve these matters in a manner that is in the Company's best interest, we will proceed with the litigation. Separately, during July 2010, the Company entered into settlement agreements with 46 potential claimants who, several years ago, had threatened to file lawsuits against the Company claiming that Zicam Cold Remedy nasal gel had caused a loss of smell. The Company denies the allegations but concluded for business reasons that it was in the Company's best interest to settle the claims. The settlement amounts were $5,000 or less per claimant and were paid from our litigation reserve."

"To avoid ongoing administrative costs, the Company and its product liability insurer reached agreement that the insurer would transfer the full amount of the $5.0 million policy to the Company. Based on this arrangement, the Company recorded $2.2 million, in the quarter ended June 30, 2010, as reimbursement of legal expenses for defending claims previously made against the policy. This resulted in a net credit of $0.3 million for product liability related legal expense ($1.9 million prior to insurance reimbursement) in the quarter ended June 30, 2010, which compares to legal expense of $0.6 million in the quarter ended June 30, 2009. The remaining $2.8 million to be received from the insurer will be applied against ongoing future legal expense. We expect to continue to incur legal expense of $1.3 million to $1.8 million per quarter before allocation of the remaining insurance proceeds."

For fiscal 2011, the Company anticipates revenue increasing 3% to 5% above the $67.3 million achieved in fiscal 2010. In addition, we expect to report net income between $2.0 and $3.0 million.