VERU INC. (filing registrant: The Female Health Company) — Form 10-Q summary
Business context and reporting period. The supplied filing identifies the registrant as The Female Health Company, not VERU INC. It reports the fiscal quarter and nine months ended June 30, 2013; the filing does not explain the issuer-name discrepancy. The company manufactures and sells the FC2 Female Condom, its principal product, through public-health customers and commercial distributors in 143 countries.
Key financial metrics
| Metric | Three months ended June 30, 2013 | Nine months ended June 30, 2013 |
|---|---|---|
| Revenue | $7.28 million | $26.67 million |
| Gross profit / gross margin | $3.74 million / 51% | $15.23 million / 57% |
| Operating income | $1.09 million | $8.05 million |
| Net income | $0.73 million | $7.75 million |
| Diluted earnings per share | $0.03 | $0.27 |
| Operating cash flow | Not stated separately for the quarter | $12.76 million |
At June 30, cash was $11.88 million, working capital was $13.56 million, and total liabilities were $5.14 million. No borrowings were outstanding. The company had a revolving credit facility of up to $2 million, subject to a borrowing base. Nine-month capital expenditures were $0.29 million; dividends paid were $5.46 million. Management said available cash was expected to fund operations for the next 12 months, while noting there was no assurance.
Material changes versus prior comparable periods
- Quarter: revenue fell 16% year over year, on a 17% decline in unit sales; average selling price rose 2%. Gross profit declined 29%, gross margin fell from 61% to 51%, and net income fell 71%. Management attributed the weaker results mainly to lower shipments, higher costs, and increased incentive compensation expense.
- Nine months: revenue rose 6% on 5% higher unit sales and a 1% increase in average selling price. Gross profit grew 2%, but margin declined from 59% to 57%, primarily due to the volume purchasing incentive program. Operating income rose 4% and net income rose 9%.
- Cash increased from $5.29 million at September 30, 2012 to $11.88 million at June 30, 2013. Receivables declined from $7.27 million to $0.93 million, while inventory increased from $1.46 million to $2.82 million.
Outlook, risks and unusual items
- Management cited irregular timing of large orders and public-sector tenders as drivers of quarter-to-quarter sales volatility. Nine-month operating cash flow included a $4.03 million favorable contribution from changes in operating assets and liabilities, mainly lower receivables, partly offset by higher inventory.
- The company expected to invest approximately $2.3 million in education and training during fiscal 2013 and had pledged up to $14 million over six years. Its program also provides qualifying major public-sector buyers with product at no cost; management said the program could affect gross margins.
- On July 15, 2013, the board declared a $0.07-per-share dividend, expected to require approximately $2.0 million. Future dividends remain at the board’s discretion and depend on available cash flows.
- On August 1, 2013, after quarter-end, the company extended its $2 million revolving credit facility to August 1, 2014. It is secured by substantially all company assets and restricts certain transactions and dividends or repurchases; no amounts were outstanding at June 30.
- Nine-month non-operating income included $0.28 million of interest and other income, primarily from an insurance-carrier demutualization distribution. Foreign-currency transaction losses were $0.10 million for the nine months.
- Principal risks include dependence on a single product, concentrated large customers, reliance on public-health programs and distribution partners, regulatory compliance, tender delays, competition, foreign-exchange and raw-material risks, and the company’s ability to sustain dividends. The filing reported no material change in previously disclosed risk factors.
Important facts for investors to verify
- Confirm the correct issuer: the request names VERU INC., but the filing names The Female Health Company.
- Confirm that the relevant comparison is fiscal Q3 ended June 30, 2013, and distinguish quarter results from nine-month results.
- Assess whether the sharp quarterly decline in shipments reflects order timing or a more sustained demand change, and monitor customer concentration and tender activity.
- Track the no-cost product program’s impact on cost of sales, inventory, and gross margins, along with the planned education and training spend.
- Review cash generation excluding working-capital movements, and assess dividend affordability, borrowing availability under the borrowing base, and the credit facility’s restrictions.