SEC Filing Summary
Filing/entity note: The supplied filing is The Female Health Company’s Form 10-K, not a filing under the name VERU INC. It covers the fiscal year ended September 30, 2014; fiscal Q4 was July 1–September 30, 2014. Figures are in U.S. dollars unless stated otherwise.
Business context
The company manufactured and sold FC2, its sole current product: a female condom used for contraception and STI prevention. Public-health agencies and government programs were its main market. Sales depended on a small number of large customers and tender processes, which can delay or vary orders and shipments.
Key financial results
| Metric | FY2014 | FY2013 | Change |
|---|---|---|---|
| Net revenue | $24.49 million | $31.46 million | Down 22% |
| Units sold | 42.52 million | 54.76 million | Down 22% |
| Gross profit / margin | $13.12 million / 53.6% | $17.50 million / 55.6% | Margin down 2.0 percentage points |
| Operating income / margin | $3.92 million / 16.0% | $9.79 million / 31.1% | Down 60% |
| Net income | $2.43 million | $14.34 million | Down 83% |
| Diluted earnings per share | $0.08 | $0.50 | |
| Cash from operations | $3.67 million | $11.79 million | Down $8.13 million |
Average selling price rose 0.3%. The FY2014 effective tax result included $1.52 million of tax expense, versus a $4.41 million tax benefit in FY2013, when deferred-tax valuation allowance reductions materially increased reported earnings. Fiscal Q4 revenue was $5.55 million and the company recorded a $566,000 net loss, compared with $4.79 million revenue and $6.59 million net income in Q4 FY2013.
At September 30, 2014, cash was $5.80 million, working capital was $9.70 million, total assets were $31.67 million, and stockholders’ equity was $28.07 million. Current liabilities were $3.38 million. No revolving-credit borrowings were outstanding; the company reported only minimal long-term obligations. Investing activities used $97,000 and financing activities used $6.69 million, principally for dividends and share repurchases.
Material changes and outlook
- Revenue and unit sales fell as large Brazil orders delayed from earlier periods did not recur; lower shipments also reduced operating income and operating cash flow.
- SG&A rose to $9.14 million from $7.49 million, mainly reflecting sales, marketing, training and education spending, including Brazil-related program and tender fees.
- On July 14, 2014, the board suspended quarterly dividends to redirect operating cash toward strategic growth initiatives. The company had paid $6.07 million in dividends during FY2014.
- The announced growth strategy aimed to increase FC2 demand through sales and marketing and to evaluate complementary product, technology or business acquisitions. No quantified sales or earnings guidance was provided.
- In October 2014, the Brazil distributor received an exclusive contract under a public tender through August 20, 2015. Orders were discretionary; the company expected orders to begin in FY2015 Q1 but said timing and amounts were uncertain.
- Unfilled orders were $9.85 million as of November 28, 2014, versus $2.94 million a year earlier; management expected current orders to ship in FY2015. The company said its cash position should fund operations for the next 12 months, while noting that this was not assured.
Risks, contingencies and unusual items
- Customer concentration was substantial: UNFPA, USAID, Sekunjalo and Azinor together represented 81% of FY2014 unit sales; UNFPA alone accounted for 40%.
- The company depended on one product and one Malaysian manufacturing facility. Tender timing, public-sector budgets, competition and potential pricing pressure could materially affect sales and margins.
- Other risks included raw-material and labor costs, foreign exchange exposure, regulatory compliance, and the execution and returns of planned growth initiatives or acquisitions.
- The $2 million Heartland Bank revolving facility was extended to August 1, 2015, subject to a borrowing base, collateral and restrictions; no amount was drawn at year-end. Management reported no required debt-service obligations.
- The balance sheet included $17.35 million in net deferred tax assets, including tax-loss carryforwards; their realization depends on future taxable income and management estimates. The company reported no pending legal proceedings and maintained $5 million of product-liability coverage.
- Management and the auditor concluded that internal control over financial reporting was effective as of September 30, 2014. The auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether the filing and issuer identity match the intended company, given the supplied metadata names VERU INC. while the filing names The Female Health Company.
- Actual orders, shipment timing and collections under the Brazil tender, and whether the November 2014 backlog converted to FY2015 revenue.
- Whether sales recover and customer concentration declines, particularly dependence on UNFPA and public-sector procurement.
- Whether added sales and marketing spending produces profitable growth, and whether any acquisitions are pursued or financed.
- Cash-flow and liquidity trends after the dividend suspension, and the recoverability of deferred tax assets.