SEC Filing Summary
Issuer and period: The supplied filing is a Form 10-Q for The Female Health Company and its subsidiaries, for the quarter ended June 30, 2011 (fiscal third quarter) and the nine months then ended. This does not match the request metadata identifying VERU INC.; verify the issuer and filing before relying on this summary.
Business context and financial performance
The company manufactured, marketed and sold the FC2 female condom, its principal product, through public-health customers and commercial partners. The unaudited results cover the three and nine months ended June 30, 2011, compared with the corresponding 2010 periods.
| Metric | Quarter ended June 30 | Nine months ended June 30 |
|---|---|---|
| Net revenue | $3.52 million, up 101% from $1.75 million | $11.46 million, down 21% from $14.42 million |
| Gross profit / margin | $1.81 million / 52%, versus $0.94 million / 54% | $5.64 million / 49%, versus $8.32 million / 58% |
| Operating income | $0.45 million, versus $0.02 million | $0.99 million, versus $1.29 million |
| Net income | $0.42 million, versus $0.08 million; diluted EPS $0.01 | $0.88 million, versus $1.22 million; diluted EPS $0.03 |
| Operating cash flow | Not presented for the quarter | $4.61 million, versus $3.40 million |
For the quarter, unit volume rose 126%, while average selling price fell 11%, reflecting sales mix; the prior-year quarter was unusually weak. For the nine-month period, unit volume fell 17%. The filing attributes the broader-period revenue and profit declines largely to delayed large orders from Brazil and South Africa and lower production overhead absorption. A one-time production cost also reduced quarterly gross margin.
Liquidity, debt and capital allocation
- At June 30, 2011, cash was $3.28 million, working capital was approximately $7.6 million, total assets were $15.32 million and stockholders’ equity was $13.46 million.
- Total liabilities were $1.86 million. No amounts were outstanding under the revolving credit facilities at June 30, 2011; the company reported no borrowings under its line of credit in the prior five years.
- Cash increased by $0.37 million over the nine months. The company generated $4.61 million of operating cash flow and paid $4.16 million in cash dividends.
- On August 1, 2011, the company amended its Heartland Bank facility: a revolving line of up to $2.0 million, expiring August 1, 2012, subject to a borrowing base and secured by substantially all company assets. Interest is the bank’s base rate plus 0.5%. Dividends and repurchases are subject to a 1:1 total-liabilities-to-equity limit.
- The board declared a subsequent $0.05-per-share dividend, expected to total approximately $1.4 million and be paid August 9, 2011. The filing cautions that future dividends are discretionary.
Outlook, risks and notable items
Management stated that current cash was expected to fund operations for the next 12 months, but gave no specific revenue or earnings guidance and offered no assurance that cash would be sufficient. Management identified tender and shipment timing as a source of significant sales volatility. Brazil had awarded the distributor a tender for up to 20 million units through March 31, 2012, but orders were delayed; an South Africa tender for up to 11 million units had also faced administrative delays.
Key risks include dependence on FC2 as the company’s sole current product; reliance on a small number of large public-sector customers, government programs, donors and distribution partners; competition and pricing pressure; regulatory compliance and product-liability exposure; manufacturing interruption or raw-material risks; foreign-market and currency risks; and the possibility of needing additional capital. The company maintained $5 million of product-liability insurance. Fiscal 2010’s nine-month results included $1.93 million of restructuring costs related to the closure of UK FC1 manufacturing; there were no such costs in 2011. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting reported.
Most important facts to verify
- Confirm that this Female Health Company filing—not a VERU INC. filing—is the intended document.
- Check subsequent filings for the timing and fulfillment of the Brazil and South Africa tenders and their effects on sales and cash flow.
- Review the full August 1, 2011 credit agreement for borrowing-base details, covenant restrictions and availability of funds.
- Assess whether cash generation supports continuing dividends given order volatility and the company’s reliance on one product.
- Reconcile the reported quarter’s strong year-over-year rebound with the nine-month revenue and margin declines.