Highlights:
Fourth Quarter
- Records
- Unit sales rise 19% to 13.8 million
- Gross margin 59.0% vs. 48.5% in prior-year quarter
- Operating income rises to $3.1 million
- Tax benefit of $2.5 million recognized
FY2010
- Operating income of $4.3 million.
- Gross margin increases to 58.2%, from 49.1% in FY2009
- Net income, including restructuring charge and tax benefit, equals $6.7 million
- FC1 to FC2 transition completed
The Female Health Company (Nasdaq: FHCO), which manufactures and markets the FC2 Female Condom, today reported its financial results for the quarter and fiscal year ended September 30, 2010.
For the three months ended September 30, 2010, female condom shipments increased 19% to 13.8 million units. Net revenues decreased slightly to $7.8 million, compared with $7.9 million in the three months ended September 30, 2009, due to the fact that lower priced FC2 condoms comprised 100% of units shipped in the most recent quarter, versus 61% of units shipped in the fourth quarter of FY2009.
Gross profit increased 20% to $4.6 million, or 59.0% of net revenues, compared with $3.8 million, or 48.5% of net revenues, in the fourth quarter of FY2009. Operating income increased to a record $3.1 million in the three months ended September 30, 2010, compared with $0.5 million in the prior-year quarter. Restructuring costs in the fourth quarter of FY2010 were nominal, compared with $1.5 million in restructuring costs during the prior-year quarter. Operating income for the fourth quarter of FY2010 increased five-fold over the prior-year quarter when $1.5 million restructuring charge was taken.
In the fourth quarter of FY2010, the Company recorded an unfavorable currency loss of $0.1 million and a tax benefit of $2.5 million, compared with a favorable currency gain of $0.1 million and a tax benefit of $1.6 million in the same period last year.
The Company reported net income attributable to common shareholders of $5.5 million, or $0.19 per diluted share, in the fourth quarter of FY2010, up 143% and 137%, respectively, over the fourth quarter of FY2009, with net income attributable to common shareholders of $2.3 million, or $0.08 per diluted share.
The Company expects significant quarter-to-quarter variations in its operating results, due to the timing, receipt and requested shipping schedules of large orders.
For the year ended September 30, 2010, net revenues decreased 19% to $22.2 million, compared with $27.5 million in FY2009, reflecting the influence on average unit prices of the transition to the Company's second-generation FC2 female condom. Unit sales decreased 3% to 38.9 million female condoms in FY2010, almost 100% of which were FC2 female condoms. In FY2009, the Company shipped 40.2 million units, approximately 49% of which were FC2 female condoms. Unit shipments in FY2010 were negatively impacted by delays in the receipt of two large orders, which the Company announced when reporting its third fiscal quarter operating results. Gross profit decreased 4% to $12.9 million (58.2% of net revenues), compared with $13.5 million (49.1% of net revenues) in FY2009. Operating income, including a $1.9 million restructuring charge associated with the transition from FC1 to FC2 (see Table 1), decreased 8% to $4.3 million in FY2010, compared with operating income of $4.7 million in FY2009, including a $1.5 million restructuring charge.
Net income attributable to common stockholders increased 3% to $6.7 million, or $0.24 per diluted share, in FY2010, compared with net income attributable to common stockholders of $6.5 million, or $0.24 per diluted share, in FY2009. In FY2010, the Company was able to recognize a tax benefit for past losses that added $2.5 million to net income attributable to common stockholders, as compared with a $1.5 million tax benefit recognized in FY2009.
"We are very pleased to report that FY2010 represented another year of solid profitability for our Company," noted O.B. Parrish, Chief Executive Officer of The Female Health Company. "The fourth quarter was particularly strong, with unit sales rising 19% and gross profit margins reaching 59.0%, compared with 48.5% in the prior-year quarter. This clearly reflects the favorable impact of our second-generation FC2 female condom upon profitability, despite the negative influence upon revenue comparisons of the transition to the lower priced FC2. Fourth quarter sales did not include revenues from either of the two delayed orders that caused us to report lower shipments in the third quarter of FY2010."
"Our solid FY2010 operating performance reflects sustained global demand for the FC2 female condom," continued Parrish. "Most importantly, the global distribution of the FC2 female condom provides women increased protection against HIV/AIDS."
The Company's operations generated $4.0 million in cash during FY2010, and its year-end cash position approximated $2.9 million, compared with $2.8 million at the end of FY2009. Cash payments in FY2010 included approximately $4.1 million for cash dividends and approximately $3.6 million in restructuring payments. The Company remains debt-free and has $2 million in unused credit lines available.
Stockholders' equity at September 30, 2010 totaled $16.1 million, versus $13.0 million at the end of FY2009.
In accordance with SEC regulations, the Company's filing status was evaluated on March 31, 2010, resulting in a change in the Company's status to that of an "accelerated filer". Our registered independent public accounting firm audited the Company's system of internal control over financial reporting as part of their FY2010 audit. At the conclusion of their audit, the Company received an unqualified opinion in connection with our system of internal control over financial reporting.
In late November 2010, the Brazilian Government issued a tender for the purchase for 10 million female condoms with bid submission due December 1, 2010. The Company submitted a timely bid for 10 million FC2 female condoms.
FY2011 Earnings Guidance
FHC expects FY2011 unit sales to increase 15%-20% from FY2010 levels. Operating earnings are expected to increase 10% - 15% over the $6.3 million in operating income recorded for FY2010 (exclusive of restructuring charges of $1.9 million). The Company expects the first quarter of FY2011 to be lower than first quarter FY2010, with unit sales accelerating as the fiscal year progresses. As experienced in FY2010, the principal challenge in providing guidance is the timing of orders that represent a significant portion of the Company's annual sales. As a result, the figures could be impacted positively or negatively, depending of the timing of such orders.