Business context and reporting period
The filing is for The Female Health Company (FHC), which manufactured, marketed and sold the FC2 Female Condom. It reports the three and nine months ended June 30, 2014; the three-month period is fiscal Q3. The filing identifies the registrant as The Female Health Company, not VERU INC., as stated in the request metadata. Verify the company and filing identity.
Key financial metrics
| Metric | Three months ended June 30, 2014 | Prior-year quarter | Nine months ended June 30, 2014 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $7.90 million | $7.28 million | $18.94 million | $26.67 million |
| Gross profit / margin | $4.17 million / 52.8% | $3.74 million / 51.4% | $10.23 million / 54.1% | $15.23 million / 57.1% |
| Operating income | $2.03 million | $1.09 million | $4.41 million | $8.05 million |
| Net income / diluted EPS | $1.16 million / $0.04 | $0.73 million / $0.03 | $3.00 million / $0.10 | $7.75 million / $0.27 |
Quarterly net margin was approximately 14.7%, versus 10.0% a year earlier; nine-month net margin was approximately 15.8%, versus 29.1%. At June 30, cash was $4.14 million, working capital was $11.3 million, total liabilities were $3.71 million, and stockholders’ equity was $29.0 million. No borrowings were outstanding. A revolving credit facility provided up to $2 million, subject to a borrowing base; it was due to expire August 1, 2014, and management expected renewal for one year.
Operating cash flow for the nine months was $1.48 million, compared with $12.76 million in the prior-year period. Cash fell $4.78 million to $4.14 million, reflecting $6.07 million of dividends paid, share repurchases and working-capital movements. Accounts receivable rose from $2.36 million at September 30, 2013 to $5.42 million at June 30, 2014. The company declared $0.21 per share in dividends during the nine months; none were declared for the quarter.
Material changes versus prior comparable periods
- Quarterly revenue rose 9%, with unit sales up 9%; management attributed the change mainly to timing and shipment of orders. Average selling price per unit declined 0.3% on sales mix.
- Quarterly operating income increased 86% and net income increased 60%, helped by higher unit sales, improved gross margin and lower operating expenses.
- Nine-month revenue and unit sales fell 29%; gross margin declined to 54% from 57%, and net income fell 61%. Management attributed the revenue volatility primarily to order timing and shipment. Lower unit sales and margins reduced operating income, partly offset by lower expenses.
- Nine-month income tax expense increased to $1.46 million from $0.47 million. The company said it no longer expected significant income-statement benefits from reductions in its deferred-tax valuation allowance, though tax-loss carryforwards could reduce cash taxes when used.
Outlook, commentary, risks and unusual items
- On July 14, 2014, FHC announced suspension of quarterly cash dividends to direct operating cash flow toward strategic growth initiatives. In July it also announced plans to increase sales and marketing investment, appointing an Executive Vice President of New Business Development; it said it may pursue a complementary acquisition. No formal numeric earnings or revenue guidance is provided.
- Management considered cash adequate for operations over the next 12 months, but gave no assurance. It expected the $2 million credit facility to be renewed on substantially unchanged terms.
- The company depends entirely on FC2 and on a relatively small number of large public-sector and distribution customers. Tender timing, funding and shipment schedules can cause substantial period-to-period sales volatility. Increased competition may pressure FC2 pricing or sales.
- Other disclosed risks include dependence on government and donor prevention programs and commercial partners, regulatory compliance, manufacturing disruption, foreign-currency and raw-material price exposure, and the ability to fund growth initiatives. Product-liability coverage was $5 million. The filing reported no material change in previously disclosed risk factors.
- Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the filing belongs to the intended issuer: the report names The Female Health Company, while the request metadata names VERU INC.
- Check the post-quarter dividend suspension, credit-facility renewal and planned growth spending against subsequent filings and announcements.
- Assess collections and working-capital trends, particularly the increase in receivables, and whether cash generation supports planned investment.
- Track order timing, unit volumes, gross margins and customer concentration, given the sharp nine-month decline and management’s description of volatile shipments.