Full Press Release Details
The Female Health Company Reports
Fiscal 2016 Third Quarter and First Nine Months Operating Results
--Record Date of July 28, 2016 Set for Special Meeting of Shareholders in Connection with Aspen Park Pharmaceuticals Merger--
Operating Results for Fiscal 2016 First Nine Months Compared with Prior Year Period:
CHICAGO (July 28, 2016) - The Female Health Company (NASDAQ: FHCO) (the Company or FHC), which manufactures and markets the FC2 Female
Condom (FC2), today reported its operating results for its fiscal third quarter and first nine months ended June 30, 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).
In July 2014, FHC announced a major strategic goal of diversifying the Company s product line. The objective was to drive growth and generate a
higher return for our shareholders by adding multiple, high-potential proprietary products to our portfolio, while at the same time mitigating the risk associated with being a single product company, said O.B. Parrish, Chairman and Chief
Executive Officer of The Female Health Company.
On April 6, 2016, we announced a proposed merger transaction with Aspen Park Pharmaceuticals (APP)
that would fulfill this objective.
On July 15, 2016, FHC announced that July 28, 2016 is the record date for the special meeting of the
Company s shareholders in connection with the proposed merger. The staff of the Securities and Exchange Commission (SEC) has completed its review of FHC s preliminary proxy statement relating to the special meeting, and FHC expects to
mail the definitive proxy statement to its shareholders on or about August 8, 2016. The date, time and location of the special meeting will be announced at a later time.
I believe the proposed merger is a remarkable opportunity for our company and its shareholders for three reasons:
The new company will have five proprietary pharmaceutical product opportunities. Three of the proprietary product opportunities are candidates for
the FDA 505(b)(2) regulatory pathway, which can significantly reduce the cost, risk and time required in securing FDA approval. The 505(b)(2) pathway permits the use of established data on currently marketed products for securing new claims
and/or dosage forms for such products.
The new company will include a women s health division that will focus on expanding FHC s existing,
profitable business while developing newly acquired oncology assets for breast and ovarian cancer; and, a men s health division focused on the areas of benign prostatic hyperplasia, male infertility, hot flashes in men on prostate cancer
therapy, gout and advanced prostate cancer, together with consumer health products for premature ejaculation and sexual health vitamin supplements. Following the business combination, the Company will be renamed Veru Healthcare Inc.
Turning to our financial results, we believe the decrease in net revenues and operating income for the third quarter and year to date were due to the
volatility of the public sector market. In 2014, FHC was awarded a tender for Brazil, which resulted in orders for 40 million units, most of which were shipped in FY2015. Shipments to Brazil in the third quarter and year to date in FY2016
were significantly less than in the same periods of FY2015.
Despite a 29% decrease in net revenues for the quarter, the Company generated operating
income of $848,519, or 15% of net revenues. Year to date, the Company reported operating income of $3,311,499, or 18% of net revenues. The Company remains debt free, reflecting our capacity to cope with market volatility and remain
In addition, operating expenses for the quarter and year to date periods included investment expense of $750,006 and $1,865,452,
respectively, for the diversification project and FC2 consumer study. Excluding these expenses, operating income for the quarter would have been $1,598,525, or 29% of net revenues, and year to date would have been $5,176,951, or 28% of net
I believe the long-term demand for the female condom will continue to rise due to the increased incidences of HIV/AIDS, desire to prevent
unwanted pregnancy and ever growing global impact of the Zika virus.
Third Quarter Results
For the three months ended June 30, 2016, the Company generated net revenues of $5,560,776 and net income of $570,258, or $0.02 per diluted share, compared
with net revenues of $7,813,207 and net income of $1,170,974, or $0.04 per diluted share, for the three months ended June 30, 2015.
decreased $2,252,431 on a 25 percent decrease in unit sales compared with the same period last year. The principal factor in the decrease is the period to period impact of the record tender shipments to Brazil in fiscal 2015. The Company
had record net revenues of $7,813,207 in the third quarter of fiscal year 2015, which included net revenues of $3,056,625 from Brazil. The FC2 average sales price per unit decreased 4.6 percent compared with the same period last year due to
changes in sales mix and a unit price reduction for all major public sector purchases effective April 1, 2016.
Cost of sales decreased $853,089 to $2,327,583 from $3,180,672 for the same period last year. The reduction
is due to lower unit sales, reduction of certain costs and the favorable impact of currency exchange rates.
Gross profit decreased $1,399,342, or 30
percent, to $3,233,193 from $4,632,535 for the three months ended June 30, 2015. Gross profit margin was 58 percent of net revenues versus 59 percent 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 public sector orders
rather than from any fundamental changes in the business or the underlying demand for female condoms.
Operating expenses decreased $794,013, or 25
percent, to $2,384,674 from $3,178,687 in the prior year period. The decrease is due to reduced payments due to our Brazilian distributor for marketing and management fees for the 2014 tender, no investment expenses for a study regarding a
potential FC2 consumer program in the U.S. and lower employee compensation expense. These decreases were partially offset by increased investment expense for diversification, including expenses for the proposed merger transaction with
APP. These investment expenses with no current return related to the FC2 consumer study and diversification were $0 and $750,006 for the three months ended June 30, 2016, respectively, compared to $183,069 and $200,681 in the prior year period,
Operating income decreased $605,329, or 42 percent, to $848,519, for a margin of 15%, from operating income of $1,453,848 in the third
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 $750,006, operating income was $1,598,525, or 29%
of net revenues, for the three months ended June 30, 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 $600,716, or 51 percent, to $570,258 from $1,170,974 in the same period of the prior year, as a result of the factors
discussed above. The net income margin was 10 percent and 15 percent of net revenues for the three months ended June 30, 2016 and 2015, respectively.
Adjusted EBITDA totaled $1,012,723 in the third quarter of FY2016, compared with adjusted EBITDA of $1,739,360 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.
For the nine months ended June 30,
2016, the Company generated net revenues of $18,564,236 and net income of $2,095,666, or $0.07 per diluted share, compared with net revenues of $25,449,880 and net income of $3,643,465, or $0.13 per diluted share, for the nine months ended June 30,
Net revenues decreased $6,885,644 on a 25 percent decrease in unit sales compared with the same period last year. Effective April 1, 2016, the
unit price was reduced for all major public sector purchases. The FC2 average sales price per unit decreased 2.2 percent compared with the same period last year due to changes in sales mix and the public sector price adjustment noted above.
Cost of sales decreased $3,520,254 to $7,083,311 from $10,603,565 for the same period last year. The
reduction is due to lower unit sales, reduction of certain costs and the favorable impact of currency exchange rates.
Gross profit decreased $3,365,390,
or 23 percent, to $11,480,925 from $14,846,315 for the nine months ended June 30, 2015. Gross profit margin increased to 62 percent of net revenues from 58 percent of net revenues for the same period last year, primarily due to the reduction of
certain costs and the favorable impact of currency exchange rates on 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 $819,799 to $8,169,426 from $8,989,225 in the prior year period. The decrease was a result of a reduction in payments due to
our Brazilian distributor for marketing and management fees for the 2014 tender and a reduction in employee compensation expense, partially offset by increased investment expenses for a study regarding a potential FC2 consumer program in the U.S.
and for diversification, including 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 $308,800 and $1,556,652 for the nine
months ended June 30, 2016, respectively, compared to $183,069 and $382,085 in the prior year period, respectively.
Operating income decreased
$2,545,591, or 43 percent, to $3,311,499, for a margin of 18%, from operating income of $5,857,090 in the nine months ended June 30, 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 $1,865,452, operating income would have been $5,176,951, or 28% of net revenues, for the nine months ended June 30, 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 was $1,032,840, a
decrease of $1,228,935 from $2,261,775 for the same period in fiscal year 2015. The effective tax rate was 33.0 percent and 38.3 percent for the nine months ended June 30, 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. 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 nine months ended June 30, 2016 the Company recorded income tax expense of
$1,032,840, while due to the use of NOL carryforwards the Company made cash payments of $276,284 for income taxes, or 27 percent of income tax expense. This resulted in a cash savings of $756,556.
The Company s net income decreased $1,547,799, or 42 percent, to $2,095,666 from $3,643,465 in the same period of the prior year, as a result of the
factors discussed above. Net income was 11 percent and 14 percent of net revenues for the nine months ended June 30, 2016 and 2015, respectively.
Adjusted EBITDA totaled $3,819,309 compared with $6,817,876 in the same period of the prior 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, July 28, 2016, to discuss its
third quarter and nine-month 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 7821321 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, August 1, 2016 through Friday, August 5, 2016, by dialing 1-877-344-7529 (international callers dial 1-412-317-0088) and entering the conference ID # 10090408. After
Friday, August 5, 2016, the replay of the call will be available on the Company s website at www.fhcinvestor.com.
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 statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this release include statements relating to the proposed merger transaction between FHC and
APP and the integration of our two businesses, long-term demand for female condoms, the Company s ability to maintain its position in the market, and the Company s ability to successfully implement sales and marketing initiatives for FC2
and the effect of such initiatives on the Company s business and results of operations. These statements are based upon the Company s current plans and strategies, and reflect the Company s current assessment of the risks and
uncertainties related to its business, and are made as of the date of this release. The Company assumes no obligation to update any forward-looking statements contained in this release as a result of new information or future events,
developments or circumstances. Such forward-looking statements are inherently subject to known and unknown risks and uncertainties. The Company s actual results and future developments could differ materially from the results or developments
expressed in, or implied by, these forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to, the following: product