Matrixx Initiatives, Inc. F1Q11 (Qtr End 06/30/10) Earnings Call Transcript

Matrixx Initiatives, Inc. F1Q11 (Qtr End 06/30/10) Earnings Call Transcript
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Matrixx Initiatives, Inc. (MTXX)

F1Q11 (Qtr End 06/30/10) Earnings Call Transcript

August 4, 2010 11:00 am ET

Executives

Bill Barba – VP, Finance and Accounting, Treasurer

Bill Hemelt – Acting President, CFO and COO

Analysts

Scott Henry – Roth Capital

Kevin Kedra – Gabelli Funds

Brad Leonard – BML Capital Management

Stan Trilling – Credit Suisse

Presentation

Operator

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Good day, everyone and welcome to the Matrixx Initiatives Incorporated fiscal 2011, first quarter earnings results conference call. Today’s call is being recorded. At this time, I am pleased to turn the conference over to Mr. Bill Barba, Vice President of Finance and Accounting. Please go ahead, sir.

Bill Barba

Thank you, Jennifer. Good morning, everyone and thank you for joining the Matrixx Initiatives fiscal 2011 first quarter conference call. At the conclusion of today’s remarks, we will open the call for a Q&A sessions.

Before we begin, I need to advise you that this call may contain forward-looking statements, not limited to historical facts, but reflecting our current beliefs, expectations or intentions regarding future events.

A number of factors could cause actual these results to differ materially from those in the forward-looking statements and because the actual results may differ from expectations, we caution you not to place undue reliance on these statements. Additional information concerning risk factors that could affect our results are described in our filings with the SEC, including our 2010 10-K.

I would now like to turn the call over to Mr. Bill Hemelt. Bill?

Bill Hemelt

Thanks, Bill. Good morning, everyone and thank you for participating in our conference call to discuss our financial results for the first quarter of fiscal 2011. Net sales for the quarter, which is our lowest sales quarter of the year, were $3.2 million, less than half of the level from the prior year.

A large portion of the decline is related to the loss of the nasal Cold Remedy products sales. Those products, you will recall, were withdrawn in June last year. This will be the last quarter that we will have the negative comparison associated with the loss sales from those products.

With respect to earnings, the first quarter has historically been a loss for us. This year, the period loss and the comparisons with the prior year were impacted by two sizable items. First, the loss compared to last year was greatly reduced due to the absence of the various charges incurred in June 2009 related to the recall and withdrawal of nasal Cold Remedy products from the market. The total of those pre-tax charges in June 2009 amounted us to over $32 million.

Second, the loss in the current 2010 quarter was reduced by an agreement to buyback our product liability policy from the insurance carrier. Due to the policy buyback – and I mean, that may not be the right term – in which we will receive the full $5 million policy limit, we were able to offset roughly $2.2 million in legal expense for product liability defense work incurred since June 2009.

This resulted in a net credit of $300,000 in legal costs during the quarter instead of a charge of $1.9 million. Going forward, the remaining $2.8 million of the forfeited policy will be applied against legal expense in coming periods. The arrangement simplifies the administrative costs of managing this issue for both the carrier and us.

And now, I’ll turn it over to Bill Barba, our Vice President of Finance and Accounting, to detail the financial results.

Bill Barba

Thanks, Bill. As Bill mentioned, first quarter sales were 3.2 million, which compared to 6.9 million in the prior year’s first quarter. Sales in the prior year did include $2 million of nasal Cold Remedy products that occurred prior to the recall.

And as we mentioned at the fiscal year-end, our Symptom relief products have not achieved high consumer acceptance and we don’t expect significant future sales of those products. Sales of those products have continued to decline and we are 533,000 less than in the first quarter of the prior year.

Additionally, our nasal allergy and congestion sales were down approximately 880,000 versus the prior year. We believe the decline in allergy/congestion products is due to the increasing threat of private-label competition and is seen in all allergy/congestion products in the category.

We are encouraged that recent consumption data comparing the four week year-over-year sales following last year’s recall does show growth of 5% for oral Cold Remedy and 7% for allergy/congestion products.

For the first quarter, we incurred a net loss of 2.4 million, which equates to a loss of $0.26 per share compared to a net loss of 22.8 million or $2.49 per share in Q1 of last year. Results in the first quarter did include $32.9 million of pre-tax charges last year specifically related to the recall and asset impairments.

During this quarter, we did continue to see legal expense effecting operating results. As previously disclosed the company had a limited amount of product liability insurance to cover litigation expenses and losses. In order to avoid ongoing administrative costs in July of this year, the company and our product liability insurer reached agreement that the insurer would pay the full amount of the $5 million policy to the Company.

Based on this agreement, the Company recorded $2.2 million in the quarter ended June 30th, as reimbursement of legal expenses for defending claims, previously made against that policy. This resulted in a net credit of 377,000 for legal expense in the quarter. Excluding reimbursement, overall legal expense would have been 1.9 million which does compared to 577,000 in last year’s first quarter. I’d like to point out the remaining $2.8 million to be received from the insurer will be applied against ongoing future legal expense or losses and we do expect to continue to incur legal expense of about 1.3 to 1.8 million per quarter before allocating any of these insurance proceeds.

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