The Female Health Company (Nasdaq: FHCO), which manufactures and markets the FC2 Female Condom®, today reported its operating results for the first quarter of FY2011.
During the three months ended December 31, 2010, the Company's net revenues decreased 33% to approximately $3.7 million, compared with approximately $5.5 million in the first quarter of the previous fiscal year. The results are consistent with the guidance provided in 2010 fiscal year end press release issued December 3, 2010, which stated that the first quarter FY2011 would reflect a decrease over that of the prior year due to the delay in two large orders. The fourth quarter of FY2010 was the Company's most profitable quarter to date, without any contribution from these orders. With respect to one of the orders, Brazil's Ministry of Health issued a request in November 2010 for bids on up to 10 million units of nitrile female condoms. This tender reflects an increase in demand compared to the previous tender, awarded to the Company, which was for 4 million units. The Company submitted its bid in December 2010. The Company is anxious to meet the increasing demand for FC2 in Brazil. The Brazil Ministry of Health has not made public the tender award date.
The Company recorded net income of $386,668, or $0.01 per diluted share, in the first quarter of FY2011, compared with a net loss of $(698,351), or $(0.03) per diluted share, in the first quarter of FY2010.
Cost of sales decreased 28% to $1,634,450 in the first quarter of FY2011, compared with $2,285,813 in the first quarter of FY2010, on a 36% decrease in unit sales. Gross profit decreased 37% to $2,016,918 in the most recent quarter, compared with $3,202,861 in the first quarter of FY2010. Gross profit as a percentage of net revenues narrowed slightly to 55% in the quarter ended December 31, 2010, compared with 58% in the prior-year quarter.
Operating income increased $1,058,119 to $433,987 in the quarter ended December 31, 2010, versus an operating loss of $(624,132) in the three months ended December 31, 2009, when the Company recognized a one-time restructuring expense of $1,896,353.
As noted in previous news releases, the Company expects significant quarter-to-quarter variations in its operating results, due to the timing of large order receipts, production scheduling, and shipments.
"While such delays occur, we remain highly confident that the underlying demand for FC2 Female Condoms will continue to increase, due to the increase in new HIV/AIDS cases worldwide, the feminization of HIV/AIDS and the related role of FC2 in protecting women," observed O.B. Parrish, Chief Executive Officer of The Female Health Company. Women now account for more than 50% of all new HIV/AIDS cases. HIV/AIDS is now the leading cause of death worldwide among women 15-44 years of age. "Based upon currently available information, we believe we will receive the two large orders that have been delayed during the current fiscal year."
"We ended the first quarter with a very strong balance sheet," continued Parrish. "The Company's cash position as of December 31, 2010 approximated $3.6 million, which represented a 23% improvement relative to cash of approximately $2.9 million at the end of fiscal year 2010. The Company generated $2.1 million in cash from operations during the first quarter. We remain debt-free, and our shareholders' equity totaled $15.4 million at the end of the most recent quarter."
On January 14, 2011, the Company's Board of Directors declared a $0.05 per share quarterly cash dividend to shareholders of record as of January 31, 2011. The dividend payment will be paid on February 7, 2011 from the Company's cash on hand. This represents the fifth consecutive quarterly cash dividend declared by the Company.
FY 2011 Earnings Guidance
The Company reaffirmed its previous guidance, which anticipates a 15%-20% increase in unit sales in the fiscal year ending September 30, 2011, relative to unit shipments in FY2010. Operating earnings are expected to increase 10%-15% over the $6.3 million in operating income recorded in FY2010 (exclusive of restructuring charges of $1.9 million). The Company expects sales and earnings during the first half of FY2011 to be lower than in prior-year periods, with unit sales accelerating as the fiscal year progresses. As experienced in FY2010, the principal challenge in providing guidance involves the timing of orders that can represent a significant portion of the Company's annual revenues. As a result, the Company's guidance could be impacted positively or negatively, depending on the timing of such orders. Recognizing such variations will occur, the Company remains positive regarding long term increased demand for FC2.
Affordability and supply remain critical to the success of long-lasting HIV drug