Full Press Release Details
The Female Health Company Reports
Fiscal 2016 Second Quarter and First Half Operating Results
Highlights for Fiscal 2016 First Half:
Objective Achievements
CHICAGO (April 28, 2016)
- The Female Health Company (NASDAQ:CM: FHCO) (the Company or FHC), which manufactures and markets the FC2 Female Condom (FC2), today reported its operating results
for its fiscal second quarter ended March 31, 2016. The Company will host an investor conference call today at 11:15 a.m. Eastern Time (ET) to discuss these results and other topics of interest (see details below).
As recently announced, we have
entered into a transformative merger agreement with Aspen Park Pharmaceuticals, Inc. (APP), a men s and women s health care company with a deep portfolio of product candidates that address large commercial markets, said O.B. Parrish,
Chairman and Chief Executive Officer of The Female Health Company. In July of 2014, FHC announced the strategic objective of diversifying its product line. The proposed merger with APP would fulfill this objective. In establishing this
objective, the Company had recognized the significant risks of remaining a single product company in an increasingly competitive market. More than 100 opportunities were considered in making this decision. We believe the proposed merger with APP
provides the best and an outstanding opportunity to create long-term growth. The proposed merger would 1) Result in a high potential multiple product portfolio, 2) Provide proprietary product positions, three of which are subject to the FDA
505(b)(2) approval process. This special process applies to the development of new formulations/delivery methods and indications for currently marketed products. A portion of the existing data for such products may be used to secure approval. This
makes it a potentially faster and less expensive and risky process to secure approval resulting in potential nearer term revenue, for the three products noted. APP has proprietary positions with respect to all three of these products. 3) Enhance
FC2 s consumer market opportunities, 4) Create a multiple
product portfolio opportunity to capitalize on FHC s public healthcare company status, and 5) Bring a highly experienced and excellent management team to the merged company. We believe the
proposed merger brings an opportunity for long-term growth and enhanced shareholder value. We are focused on closing the transaction, which is subject to certain closing conditions, including approval by a two-thirds vote of FHC s shareholders,
during the current fiscal year.
The Company has filed an investor deck with the SEC and posted it on our website that provides significant
information related to the proposed merger.
Based on the results of the study and favorable changes in the U.S. market the board approved an
FC2 consumer program contingent on completion and approval of a detailed marketing plan and budget. We are targeting to implement this program by the end of calendar 2016.
We believe the significant decline in net revenues and operating income for the second quarter reflects the volatility of the public sector business in
terms of the receipt, timing and shipment of larger orders rather than any change in demand. Late in 2014 FHC was awarded a tender from Brazil for up to 50 million units of FC2. This tender resulted in record country specific orders for
40 million units, much of which was shipped in FY2015. This resulted in an all-time record second quarter and first half. The shipments in the second quarter and first half of 2016 were significantly less to Brazil than in 2015 resulting in a
negative comparison. In spite of a 56% decrease in net revenues from $10,977,467 to $4,772,801 the Company remained profitable. The Company had operating income of $70,425 for the second quarter of fiscal 2016 or 1% of net revenues. That the Company
remained profitable was due to increased gross margins and a reduction in expenses. However, operating expenses for the quarter included investment expenses of $648,683 with no current return related to the diversification project and the completion
of an FC2 consumer market study. Excluding these expenses for the quarter FHC would have posted operating income of $719,108 or 15% of net revenues given the volatility noted. We believe the demand for female condoms will continue to increase due to
the continued feminization and incidents of HIV/AIDs, increased need for prevention of unintended pregnancy and the unfortunate global emergence of the Zika virus.
Second Quarter Results
The Company generated net
revenues of $4,772,801 and net income of $35,045, or $0.00 per diluted share, for the three months ended March 31, 2016, compared to net revenues of $10,977,467 and net income of $1,667,574, or $0.06 per diluted share, for the three months
ended March 31, 2015.
Net revenues decreased $6,204,666 on a 56% decrease in unit sales for the three months ended March 31, 2016, compared
with the same period last year. The FC2 average sales price per unit decreased 1.5 % compared with the same period last year due to changes in sales mix. The principal factor in the decrease in net revenues is the period to period impact of the
record second quarter 2015 tender shipments to Brazil.
Cost of sales decreased $2,655,954 to $1,927,406 in the three months ended March 31, 2016
from $4,583,360 for the same period last year. The reduction is due to lower unit sales and the reduction of certain costs.
Gross profit decreased
$3,548,712, or 55%, to $2,845,395 for the three months ended March 31, 2016 from $6,394,107 for the three months ended March 31, 2015. Gross profit margin for the three months ended March 31, 2016 was 60% of net revenues versus 58% of
net revenues for the same period last year.
Significant quarter-to-quarter variations in the Company s results have historically resulted from the
timing and shipment of large orders rather than from any fundamental changes in the business or the underlying demand for female condoms.
expenses decreased $669,744, or 19%, to $2,774,970 for the three months ended March 31, 2016 from $3,444,714 in the prior year period. The majority of the decrease relates to a reduction in payments to be made to our Brazilian distributor for
marketing and management fees for the 2014 tender and expenses relating to employee compensation. These decreases were partially offset by increased investment expenses for a comprehensive study regarding a potential FC2 consumer program in the U.S.
and for diversification, including expenses for analyzing potential diversification candidates and other expenses related to the proposed merger transaction with APP. These investment expenses with no current return related to the FC2 consumer study
and diversification were $145,259 and $503,424 for the three months ended March 31, 2016, respectively, compared to $0 and $114,988 in the prior year period, respectively.
Operating income for the three months ended March 31, 2016 decreased $2,878,968, or 98%, to $70,425, or 1% of net revenues, from operating income of
$2,949,393 in the second quarter of fiscal year 2015. The decrease was primarily a result of the factors discussed above. Excluding the investment expenses related to the FC2 consumer study and diversification of $648,683, operating income was
$719,108 or 15% of net revenues for the three months ended March 31, 2016. A reconciliation of non-GAAP measures is included in the tables in the section entitled Additional Non-GAAP Performance Measures at the end of this release.
The Company s net income decreased $1,632,529, or 98%, to $35,045 in the three months ended March 31, 2016 from net income of $1,667,574 in the
same period of the prior year, as a result of the factors discussed above.
Adjusted EBITDA totaled $249,594 in the second quarter of FY2016, compared
with adjusted EBITDA of $3,276,206 in the same period last year. Adjusted diluted EBITDA per share of $0.01 in the second quarter of the current fiscal year compared with $0.11 in the second quarter of FY2015. A reconciliation of non-GAAP measures
is included in the tables in the section entitled Additional Non-GAAP Performance Measures at the end of this release.
The Company generated net revenues of $13,003,460 and net income of $1,525,408, or $0.05 per diluted share, for the six months ended March 31,
2016, compared to net revenues of $17,636,673 and net income of $2,472,491, or $0.09 per diluted share, for the six months ended March 31, 2015.
revenues decreased $4,633,213 on a 25% decrease in unit sales for the six months ended March 31, 2016, compared with the same period last year. Effective January 1, 2015, the unit price
was reduced for all major public sector purchases to replace the previous 5% no-cost product policy under the Company s volume purchasing incentive program. The FC2 average sales price per
unit decreased 1.1% compared with the same period last year due to changes in sales mix and the public sector price adjustment noted in the previous sentence.
Cost of sales decreased $2,667,165 to $4,755,728 in the six months ended March 31, 2016 from $7,422,893 for the same period last year. The reduction is
due to lower unit sales and the favorable impact of currency exchange rates on the majority of the elements in cost of sales.
Gross profit decreased
$1,966,048, or 19%, to $8,247,732 for the six months ended March 31, 2016 from $10,213,780 for the six months ended March 31, 2015. Gross profit margin for the six months ended March 31, 2016 was 63% of net revenues versus 58% of net
revenues for the same period last year. The increase in the gross profit margin is primarily due to the favorable impact of currency exchange rates on the majority of the elements in cost of sales.
Significant quarter-to-quarter variations in the Company s results have historically resulted from the timing and shipment of large orders rather than
from any fundamental changes in the business or the underlying demand for female condoms.
Operating expenses decreased $25,786 to $5,784,752 for the six
months ended March 31, 2016 from $5,810,538 in the prior year period. The decrease reflects a reduction in payments to be made to our Brazilian distributor for marketing and management fees for the 2014 tender and expenses relating to employee
compensation and other general expenses, partially offset by increased investment expenses for a comprehensive study regarding a potential FC2 consumer program in the U.S. and for diversification, including expenses for analyzing potential
diversification candidates and other expenses related to the proposed merger transaction with APP. The investment expenses with no current return related to the FC2 consumer study and diversification were $308,800 and $806,647 for the six months
ended March 31, 2016, respectively, compared to $0 and $181,404 in the prior year period, respectively.
Operating income for the six months ended
March 31, 2016 decreased $1,940,262, or 44%, to $2,462,980, or 19% of net revenues, from operating income of $4,403,242 or 25% of net revenues in the six months ended March 31, 2015. The decrease was primarily a result of the factors
discussed above. Excluding the investment expenses related to the FC2 consumer study and diversification of $1,115,447, operating income would have been $3,578,427 or 28% of net revenues for the six months ended March 31, 2016. A reconciliation
of non-GAAP measures is included in the tables in the section entitled Additional Non-GAAP Performance Measures at the end of this release.
Income tax expense for the six months ended March 31, 2016 was $801,629, a decrease of $1,175,246 from the same period in fiscal year 2015, when income
tax expense was $1,976,875. The effective tax rate was 34.4% and 44.4% for the six months ended March 31, 2016 and 2015, respectively. The reduction in the effective tax rate is due to the mix of tax jurisdictions in which the Company
recognized income before income taxes and the reduction in the Illinois state income tax rate, effective January 1, 2015, from 9.5% to 7.75%. The Company s net operating loss (NOL) carryforwards will be utilized to reduce cash payments for
income taxes based on the statutory rate
in effect at the time of such utilization. Actual income taxes paid are reflected on the Company s consolidated statements of cash flows. During the six months ended March 31, 2016 the
Company recorded income tax expense of $801,629, while due to the use of NOL carryforwards the Company made cash payments of $168,220 for income taxes, or 21% of income tax expense. This resulted in a cash savings of $633,409.
The Company s net income decreased $947,083, or 38%, to $1,525,408 in the six months ended March 31, 2016 from net income of $2,472,491 in the same
period of the prior year, as a result of the factors discussed above. Net income was 12% and 14% of net revenues for the six months ended March 31, 2016 and 2015, respectively.
Adjusted EBITDA totaled $2,806,586 in the six months ended March 31, 2016, compared with adjusted EBITDA of $5,078,516 in the same period last year.
Adjusted diluted EBITDA per share of $0.10 in the six months ended March 31, 2016, compared with $0.18 in the same period last year. A reconciliation of non-GAAP measures is included in the tables in the section entitled Additional
Non-GAAP Performance Measures at the end of this release.
Investor Conference Call
As previously announced, The Female Health Company will host an investor conference call at 11:15 a.m. Eastern Time, today, April 28, 2016, to discuss
its second quarter and first half operating results, along with other topics of interest. Shareholders and other interested parties may participate in the conference call by dialing 1-877-883-0383 (international participants dial 1-412-902-6506) and
entering 0493452 to be connected to The Female Health Company Conference Call a few minutes before 11:15 a.m. ET today.
the conference call will be available beginning at 9:00 a.m. ET Monday, May 2, 2016 through Friday, May 6, 2016, by dialing 1-877-344-7529 (international callers dial 1-412-317-0088) and entering the conference ID # 10084977. After Friday,
May 6, 2016, the replay of the call will be available on the Company s website at www.fhcinvestor.com.
About The Female Health
The Female Health Company, based in Chicago, Illinois, manufactures and markets the FC2 Female Condom (FC2). Since the Company began distributing FC2 in 2007, the product has been shipped to 144 countries. The Company owns certain worldwide rights to the FC2 Female Condom , including patents that have been issued in a number of countries around the world. The patents cover key aspects of FC2, including its overall design and manufacturing process. The FC2 Female
Condom is the only currently available female-controlled product approved by FDA that offers dual protection against sexually transmitted infections, including HIV/AIDS, the Zika virus and
unintended pregnancy. The World Health Organization (WHO) has cleared FC2 for purchase by U.N. agencies.
Safe Harbor statement under
the Private Securities Litigation Reform Act of 1995:
The statements in this release which are not historical fact are forward-looking