Matrixx Initiatives, Inc., F4Q09 (Qtr End 03/31/09) Earnings Call Transcript

Matrixx Initiatives, Inc., (MTXX)

F4Q09 Qtr End Earnings Call

May 12, 2009 11:00 am ET

Executives

William J. Hemelt - Acting President, Chief Financial Officer, Chief Operating Officer

William J. Barba - Treasurer of Matrix Initiatives

Analysts

Scott Henry - Roth Capital Partners LLC

Nick Genova - B. Riley & Company, Inc.

Kevin Kendra - Gabelli & Company

Marc Robins - Robins Consulting Group

Bill Desellum - Titan Capital Management

[Auk Tee] with [Touch Tone] Investors

Walter Ramsey - Walrus Partners

Presentation

Operator

Good morning ladies and gentlemen, my name is Melissa and I will be your conference operator today. At this time I would like to welcome everyone to the Matrixx Initiatives Fiscal 2009 Fourth Quarter and Year End Earnings Results Conference Call. (Operator Instructions) Today’s conference call is being recorded. On the call we have Bill Hemelt, Acting President, Chief Financial Officer, Chief Operating Officer and Bill Barba, Treasurer of Matrix Initiatives. Now I would like to turn the call over to Mr. Bill Barba. Please go ahead sir.

Bill Barba

Thank you, Melissa. Good morning everyone, and thank you for joining the Matrixx Initiatives Fiscal 2009 Fourth Quarter and Year End Conference Call. At the conclusion of today’s prepared remarks, we will open the call for a Q&A session. 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 results to differ materially from those in the forward-looking statements. Because actual results may differ materially 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 2008 10-K and third quarter 10-Q.

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

Bill Hemelt

Thanks, Bill. Good morning and thank you for attending our conference call to hear more about the completion of a very successful year for Matrixx Initiatives.

As reported in our earnings release our sales for the full year increased approximately 11% from $101 million to $111.6 million, just slightly above our guidance for the year. Earnings per share increased from $1.04 in fiscal 2008 to $1.46 in fiscal 2009. This represents almost a tripling of our earnings in the past two years from calendar year 2006.

Of particular note in the financial results was the improvement in gross margin to 71% from 66% last year, which was driven in part by a price increase we took earlier in the year, but more importantly it represents a significant shift to higher margin cold remedy and allergy products and away from lower margin costs and multi-symptom products.

Operating margin grew pretty much in sync with the higher gross margin, but was offset a bit by the accrual of management incentives for 2009, whereas none had been accrued in fiscal year 2008. The higher operating performance together with a 5% decrease in shares outstanding due to our stock buyback program combined to drive earnings per share up 40% for the year. Bill Barba will detail our financial results in greater detail later.

As was noted in the press release the cold/flu season continued at a relatively low level in the fourth quarter, such that for the entire season it ended down 7.6% from last years historically low season, or in other words, we established a new record low incidence level. Despite this, the Zicam brand maintained its relative position within the category based in IRI tracking. It would have increased its share of the market if not for the impact on the category of the switch of Zyrtec from prescription to over the counter status. I should also note that IRI does not include Wal-Mart store sales and club store sales which represent about 35% of the market, and last quarter we noted the significant impact that club stores had on Zicam sales this year. So, on an adjusted basis I’m confident in saying we continue to grow the brand despite the low illness level this year.

Generic competition did negatively affect our Zicam oral cold remedy products; however our Zicam Cold Remedy with Vitamin C and Echinacea offset a large part of that loss. We recognize that generic competition will expand further in coming years and we will continue to take steps, including improvements to our product line, to stay a step ahead of it.

Our nasal products registered strong double-digit growth this past year paced by our proprietary swab technology in the form of Zicam Cold Remedy Swabs and Zicam Allergy Relief Swabs. Those two swab products now constitute almost 35% of our entire sales. Demand for these products has far outstripped our capacity and we have ordered a new machine to come online this fall to keep up with the growing demand. The machine costs approximately $5 million which we will fund from our internal cash flow.

We continue to believe the Zicam brand has significant growth potential. In order to ensure that we fully capture that growth we have put our advertising program out for bid. This represents the first time that we have done so and we are very pleased by the strong interest among various agencies in wanting to take on this business. From my perspective it is another sign of the growing significance of the brand in the category.

Now I am going to turn it over to Bill Barba to discuss the financial results in more detail.

Bill Barba

Thanks, Bill. I will provide a quick review of the third quarter and then discuss full year results.

Our fourth quarter net sales decreased 7% to $30.8 million compared to $33 million in the prior year. We attribute the decrease to the much lower level of incidence of colds during the quarter and despite the decrease in net sales our gross profit increased $729,000 due to a more favorable mix of higher margin products sold; primarily our cold remedy and allergy sinus products, versus the lower priced cost of multi-symptom skews. This resulted in gross margin increasing to 74% in our fiscal fourth quarter from 67% in the prior year. Net income was $3.1 million or $0.33 per share for the quarter compared to $5.7 million or $0.59 per share in the prior year. The decrease in net income is primarily due to the planned shift of over $3 million of marketing expense to our fourth quarter from the third quarter.

For the full year the Company’s net sales increased 11% to a record $111.6 million, or approximately $10.7 million higher than the $101 million in the prior year. These increased revenues for the year are due to several factors: one, an increase in unit sales accounting for approximately $12 million of the increase; two, the effects of a price increase on cold remedy and allergy/sinus products contributed approximately $4 million of increased sales. We also realized lower product return charges, which helped increase net sales to $2.4 million and we had $1 million of sales in Canada. Offsetting those increases was an $8.7 million decline in sales of our lower margin cough and multi-symptom products.

We are pleased that gross margin for the full year increased to 71% versus 67% in the prior year. The four-percentage point increase is attributable to the price increase and mix of higher sales of cold remedy and allergy/sinus products, offsetting the declines of cough and multi-symptom sales.

Operating expense for the year was $53.2 million versus $46.5 million in fiscal 2008. The increase is primarily due to three factors: $2.1 million of increased marketing expense, although marketing expense did decline slightly as a percent of sales in the year. We also had a $2 million increase in general and admin expense associated with the recall we experienced in the first half of the year, and we recognized $2 million of higher labor expense, the majority of which is tied to annual bonus awards which were not paid in the prior two years.

Net income did increase 33% to $13.9 million or $1.46 per share versus $1.04 in the prior year. I would also like to point out that we continue to generate a significant amount of free cash flow and our balance sheet continues to improve. We ended the year with approximately $40 million of cash and marketable securities and we continue to improve our inventory management and turnkey purchasing reducing inventory to $7.7 million versus $11.5 million at the previous year-end.

Accounts receivable is $14.8 million and we continue to be debt free. Additionally, the Company continued to use cash to repurchase approximately 154,000 shares of its stock during the quarter and for the full fiscal year the Company repurchased over 573,000 shares of its stock. These repurchases have more than offset option exercises and restricted stock issuances.

I will now turn the call back to Bill Hemelt for additional comments. Bill?

Bill Hemelt

Thanks, Bill. We will be introducing two new Zicam Cold Remedy oral products this season. The products have been shown to the trade and have been well received by them. Initial shipments, as in past product introductions, will be made in the second quarter.

In the press release we noted our guidance for the coming year. Our estimate is that net sales will grow 5% above the 2009 level which represents a targeted amount of approximately $117 million. Base on our forecast EPS should grow the 10% to 15% which works out to approximately $1.61 to $1.68.

With that I would like to open it up for some question-and-answers.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Scott Henry from Roth Capital Partners.

Scott Henry - Roth Capital Partners LLC

Thanks and congratulations on exceeding estimates this year in a very challenging year for the cold/flu season.

First, when we look at your 2010 guidance of 5% how should we think about that relative to the categories? Should we expect the cough/flu products to be down again year-over-year and then steady growth in cold remedy and allergy/sinus? I am trying to get any color I can in how to think of the individual components of the business.

Bill Hemelt

What is going on in the category besides different product advertising and promotions, I mean you do have this incidence level which has now declined for three or four years, and no one seems to be able to get a good handle as to why. It may be that people are just washing their hands more frequently which cuts down on the illness level. That is obviously something that we factored into our thinking.

The other item that we factored into our thinking was the generic competition which we saw this past year and we expect it to expand significantly. Most of those products have been competing against our oral cold remedy line and that is why we will continue to innovate heavily in that category to try to keep them a little off balanced if you will.

Those were kind of the two big drivers that we wanted to factor into our thinking and make sure that we were confident that when we put out a number that we could meet and hopefully exceed it.

Scott Henry - Roth Capital Partners LLC

Just to kind of drill down on the generic store brand competition, I think in ’09 you had said that you had exposure to perhaps 20% of the business. Can you correct me if that is incorrect? Also, what kind of exposure would you expect to see in 2010?

Bill Hemelt

Well I think the 20% was relative to our products that had direct competitive threats. We saw those products in just a few major stores this year, CVS, Rite Aid, and Walgreens. Granted they are significant players. We anticipate that those competitive products will be introduced into some of the food stores and into some of the smaller, very small, drug store chains this year. It will be a more complete distribution, but our products at risk are still that 20%. It is really primarily directed at our RapidMelt Cherry product and then also our RapidMelt with Vitamin C. We have seen one product introduced against our Oral Mist in one store; we don’t anticipate that will expand beyond that one store.

Scott Henry - Roth Capital Partners LLC

Okay and do you expect any challenges to your swab product?

Bill Hemelt

That is a good question. This past year we did have one challenge and that store voluntarily took that competing product off the market after we informed them of the patents that we hold. We don’t anticipate that this year. There may be an attempt, but we feel very good about several things. First, we do have a patent on the delivery of zinc to the nasal cavity within a certain viscosity range; second, we have a patent on our particular swab. But, even beyond those defenses I think that we can manufacture our swab product and we think it is a superior swab product at a cheaper cost than anybody else can.

Scott Henry - Roth Capital Partners LLC

Okay, I will wrap it up with two macro questions. First, it seems like an odd question, but are you seeing any benefit to this swine flu pandemic? I wouldn’t expect it, but when I do look at cough cold prescriptions this week they are up over last week which isn’t seasonal. Then as well on the macro front, are you seeing any economic sensitivity to your product?

Bill Hemelt

Let’s start with the second one. We have not seen any impact of the economy except to the extent that people are buying generics versus perhaps our products or other products on the marketplace.

With respect to the swine flu I don’t think that has been a factor as much as the season, for what it is worth, in the last two or three weeks has finally gone ahead of last years level. So, we are seeing a higher level of illness than we did at the same time last year. I don’t think that is driven by swine flu. I think it is just driven by other flu and cold viruses out there.

Scott Henry - Roth Capital Partners LLC

Okay and I’m sorry, I did think of one last question. When we think about 2010, should we think of any stocking impact whether positive or negative?

Bill Hemelt

I don’t think so. I mean we will have obviously the load in of these two new skews that will impact us a bit in the September quarter, but we have had that same affect present in every year over the last several years.

Scott Henry - Roth Capital Partners LLC

Okay, thank you for taking the questions.

Operator

Your next question comes from Nick Genova with B. Riley & Company, Inc.

Nick Genova - B. Riley & Company, Inc.

First, I wanted to get a little bit more information on your advertising plan for 2010 and your strategy there, as well as get a little bit more financial detail behind that. What we understand looking at the market is that advertising rates have come down quite a bit because of the slow down. So, I am wondering if you guys are planning to boost your run rate on that and/or actually take some of that benefit from the lower advertising rate.

Bill Hemelt

Our plans aren’t finalized, and as I mentioned we did put the business out for bid. So, we will be working on that over the next two to three months including potentially some new or different creative from what we’ve run in this past year. We are looking at a variety of alternatives to how we plan our marketing and we may try to do more localized marketing. We know when certain areas are going on alert for the colds and flu, so that maybe we might run a very heavy dose of local advertising in those markets. Some of that local advertising is pretty cheap.

Everybody is aware that the automobile companies have cut back on their national advertising which has affected national advertising rates, but you also have an even greater cut back on the local markets of local automobile dealerships that have dropped local rates, I think, even further.

So, we think we can take advantage of that and really have a very heavy, heavy dose of advertising right before markets go into an alert state.

Nick Genova - B. Riley & Company, Inc.

Okay, that’s helpful. Then in regards to Canadian sales, are you guys building much into your 2010 outlook for Canadian sales? In addition, could you give us an update on that homeopathic approval, the advertising approval that you’re looking for in Canada? Is that still on pace for like an end of 2010 or what is the?

Bill Hemelt

I wish I new exactly when I could say that approval would be granted. For everyone on the phone call, we introduced products into Canada this past year, but in order to advertise those products we need what is called a DIN number, a drug identification number, from Health Canada. We have not received that as yet. We filed about a year ago. They are way behind in their process for granting those types of numbers. Consequently, we are not able to advertise in Canada.

As far as our plan, we do not assume much in the way of Canadian sales in the coming year. So hopefully if we do get that number granted soon, in the next three to five, six months, then we can start advertising and then hopefully we will start seeing an up tick in our sale to Canada.

Nick Genova - B. Riley & Company, Inc.

Okay and lastly I wanted to touch on gross margins. Obviously you guys had a pretty nice number on that front for the quarter. How sustainable is that level? I mean was there any sort of 1x items in there, or was the product mix that you guys shipped into retail an unsustainable mix, or do you expect that to be or approximate that level through 2010?

Bill Hemelt

I think the mix will continue to move in our favor. Our cough and multi-symptom products will continue to decline as a percent of the total sales. I think that in terms of the margin, I think certainly a 70% margin is certainly achievable next year for 2010. We ended this past year I think it was 70.5% and it rounded to 71%. Maybe we will get a 71% or a 72%.

Nick Genova - B. Riley & Company, Inc.

Cash from operations for the year and CapEx for the year, do you guys have that?

Bill Hemelt

We do have the significant expenditure for the swab machine, which is about $5 million; however half of that was already spent in 2009; so we only have to spend another $2.5 million in 2010. Our cash flow from operations, you can pretty much look at our net income after tax and that is our cash flow from operations and our CapEx is the $2.5 million. You can get pretty much an idea of what the free cash flow will result from the business.

Nick Genova - B. Riley & Company, Inc.

Great, thanks. That’s helpful.

Operator

Your next question comes from Kevin Kendra with Gabelli & Company.

Kevin Kendra - Gabelli & Company

I am looking at your guidance of the 10% to 15% growth on the net income line, but this year you had those charges related to the recall: just eliminating those should give you about 8% to 9% growth year over year. Why wouldn’t this growth be greater? Is there something that I’m missing there?

Bill Hemelt

At this point our plans include a little higher spend on marketing; as I said, that is still in a fluid state right now, because we haven’t put those plans together. But, we are assuming a higher percentage spend for marketing this coming year.

Kevin Kendra - Gabelli & Company

Okay, so that is where we should look at that difference coming from?

Bill Hemelt

Yes.

Kevin Kendra - Gabelli & Company

Okay and do you have any update on the CEO search?

Bill Hemelt

No. The Board continues to feel very strongly that they want to make sure that they get the right person and they fell totally confident in my ability to manage the business currently and in terms of the officers of the Company to manage the business. So, they do not want to be rushed into making the wrong pick.

Kevin Kendra - Gabelli & Company

So there is no real time line at this point?

Bill Hemelt

No specific date that is for sure.

Kevin Kendra - Gabelli & Company

Okay, but ballpark within the next few months or?

Bill Hemelt

I think when they started this they thought that they would have had somebody by now, but that just hasn’t happened. These things do take time.

Kevin Kendra - Gabelli & Company

Can you talk about, I mean you have $40 million in cash; you are not really getting much return on that in terms of interest. Do you plan to accelerate your share buyback activity, or what other use for that cash could you see going forward?

Bill Hemelt

We are looking much more closely at acquisitions of either a company, a brand, or a platform. We have been spending a lot of time trying to decide what would fit best with the Matrixx Company. So, some of the cash clearly is, at least in our minds, being set aside to finance that.

With respect to the stock repurchases, all we will say is that we continue to have an authorization. The net share authorization that is still out there is over 800,000 shares.

Kevin Kendra - Gabelli & Company

To piggyback on your answer there, in looking at acquisitions how important do you think it is to diversify away from the cough and cold season especially given the weakness that seems to continually happen year after year?

Bill Hemelt

That is definitely a major consideration. What we have told investors is that we are looking for either a product, a brand, a company, or a platform in the over the counter consumer healthcare arena, and we are trying to look for items that would leverage our strength, which we think is in the marketing and in the R&D arena. Ideally it would not be in the cough/cold category.

Kevin Kendra - Gabelli & Company

One final question, this seems like the second year where R&D has ticked down significantly. What can we expect for that going forward?

Bill Hemelt

I think you can expect that to continue at around a 3% of net sales level.

Kevin Kendra - Gabelli & Company

Okay, thank you.

Operator

Your next question comes from Marc Robins with Robins Consulting Group.

Marc Robins - Robins Consulting Group

First of all, congratulations on a good quarter and Bill, good job on the gross margin, by hook or by crook it is quite an accomplishments.

Bill Hemelt

I finally got there Marc!

Marc Robins - Robins Consulting Group

Yes, I mean I have only listened to the same broken record since 2002.

Bill Hemelt

Yes, well what we blasted past. I think I had told investors last year that we were going to deliver a 69% gross margin, so 71% is a little bit better than that.

Marc Robins - Robins Consulting Group

So, now we can call you a liar, but with good cause.

Bill Hemelt

Well that is why there are many times when I am exceeding guidance.

Marc Robins - Robins Consulting Group

That’s right. Let’s go to the R&D. I am going to beat you up here a little bit. I would think that with a company that is seeing slowing growth and with the kind of gross margin, I would expect R&D expenditures to go up, not down. This company has had a history of innovation and with the cash that you have generated I would expect that to go up to 4% and 5%, not down to 3%. Do you want to talk about why this is happening?

Bill Hemelt

Well certainly we have spent money in the R&D area in years past and we came up with a lot of product innovations. As we look back a number of those product innovations while we introduced a number of great products what we missed was really how we were going to be able to market those products in the marketplace and make them a successful business. I think we’re trying to be a little more customer driven, consumer driven, and focus our R&D efforts so that whatever they develop we end up having not just a good product, but a good product that will resonate in the marketplace.

If we need to spend more I can assure you we will.

Marc Robins - Robins Consulting Group

But, I think this would be the perfect time to have both halves. I mean you have got a relatively inexpensive marketing opportunity given the fact that there is a void visa vee the automobile industry is not advertising like it was. So, you can get more of the consumers attention. This would be the time to introduce new products, not a time to ignore the opportunity. Therefore, as a long time shareholder of the Company I am registering a complaint on that point, okay. I think that this is a time to not ignore new and novel products. Anyway, enough said, I am not on the board. You are seeing slowing growth; this is a way to get out of that.

Let’s talk about the allergy products. What is that as a percentage of your business now? Do you announce that?

Bill Hemelt

The allergy group, which consists of an allergy relief, extreme, and sinus product and our allergy swab, represents about 20% to 25% of our business.

Marc Robins - Robins Consulting Group

How much advertising do you do in that area?

Bill Hemelt

We do a couple million I think. Very little actually, but we are evaluating that. I mean the swab product, which we introduced the allergy swab product which we introduced last fall with no advertising; it actually is outselling the allergy relief in the pump version. That leads us to believe that that particular swab device is unique in the category: it is unique in the marketplace, and which we have a patent as well as a machine to product it cheaply. It is really an area that we want to focus on and continue to explore.

Marc Robins - Robins Consulting Group

Wal-Mart is now employing a direct to consumer messaging advertising system where you receive a text message direct to the consumer. It is directly to people that are in their stores. I think it is relatively inexpensive, but the proof in the pudding is that it had somewhere between a 30% and 45% success. As I read the article it drove people to buy products when they received these messages. That might not be quite so effective given an allergy product, but I will send that to you if you will allow me to send you an email. I will send you the Dallas News article on that and since you have such a great relationship with Wal-Mart you might want to think about using that as a way to bolster your seasonal slow time messaging and sales of your allergy products.

Bill Hemelt

We appreciate that.

Marc Robins - Robins Consulting Group

Okay, I will call you afterwards.

Channels how are they? Are they stuffed right now or are they about normal?

Bill Hemelt

I would say I don’t know what normal is. Over the last two years that you have had such a push by Walgreens, CVS, and now Rite Aid to reduce the amount of inventory. So, I think normal is being shifted downward. I don’t think that any of them are over stocked. Certainly with respect to our products we don’t think they’re over stocked.

Marc Robins - Robins Consulting Group

All right, so it is going to be a normal first quarter then?

Bill Hemelt

Yes and as I mentioned, the cold season to the extent that there is one going on right now, it is resulting in a little bit greater take away. So, if they ended March with a few extra bottles I think they are going out the doors now.

Marc Robins - Robins Consulting Group

Good and how about new markets? I mean Canada was a little bit of a surprise. Could we sell this into Great Britain or Mexico, or who knows where?

Bill Hemelt

I think the Canadian experience, I think, just highlights the significance of the regulatory process. I can assure you that we are looking at the regulatory process in other countries.

Marc Robins - Robins Consulting Group

Okay and then I didn’t understand this and maybe I didn’t catch it, so forgive me. Operating expenses were quite a bit higher. Bill, what happened there in the fourth quarter?

Bill Barba

The bulk of the fourth quarter, or some of it, related to the annual bonuses that were then paid out and there was a $3 million shift in marketing from the third quarter to the fourth quarter.

Marc Robins - Robins Consulting Group

Okay. How did that happen?

Bill Barba

What we say in the past few years was that the incidence of illness was trending later and later and we decided to move more of the advertising evenly over the whole cold season.

Marc Robins - Robins Consulting Group

All right, now I get you. Okay. So that is just more normal and then $2 million was bonus.

Bill Barba

Yes and about half of that, ¾ of that was accrued at the end of the third quarter.

Marc Robins - Robins Consulting Group

Okay, because I was going to say that we should have paid one hell of a dividend to shareholders then. That was a joke Bill.

Bill Barba

I know.

Marc Robins - Robins Consulting Group

Okay, good. Again, it was a very good quarter and thank you.

Operator

Your next question comes from Bill Desellum with Titan Capital Management.

Bill Desellum - Titan Capital Management

We have two very different questions. First of all would you share whatever thoughts you have or items that you were hearing, or reasons that you were hearing, for the lower incidence of colds and/or the movement of when the cold season takes place?

Bill Hemelt

I think the biggest factor is the hand washing and publicity surrounding the benefits of hand washing. In addition, there has been some products come on the market the last two our three years that you can wipe your hands. You go into a food store now and they have a box of wipes that you can wipe the cart with. I would like to think that it is also because Zicam works and it is reducing the duration of colds, so that there are fewer viruses being spread around.

Bill Desellum - Titan Capital Management

That is a bummer when your own product cannibalizes your future, isn’t it.

Bill Hemelt

Well let’s not let that word get out right now.

Bill Desellum - Titan Capital Management

Okay thank you. My second question is relative to the two new cold remedy products that you referenced that you have shown to trade. Share with us what insight you can about each of those. Also, if we recall correctly, in one of your past SEC filings I think you made a reference to a new swab line that would be coming. Is that one of these two products or is that something separate?

Bill Hemelt

No, both of these two new products are Zicam Cold Remedy and they are oral forms. That is as far as I will go. They will be in the marketplace in about three, four, or five months from now. I simply won’t go beyond that, for competitive reasons, at this time.

Bill Desellum - Titan Capital Management

Since we hit a roadblock there, the new swab line that was referenced in the SEC filings here a couple of quarters ago. What was that directed toward?

Bill Hemelt

That is the machine that I mentioned earlier, the $5 million machine. It is just to produce, to keep up with the demand for the Cold Remedy Swabs and the Allergy Swabs that we currently have on the marketplace.

Bill Desellum - Titan Capital Management

So that is not a new swab product line.

Bill Hemelt

No. It is not a new line; it is a new machine to keep up with the current demand. Our Cold Remedy Swabs increased 26% this past year. Obviously it is what we featured in our advertising, but we want to drive people to that form because of the proprietary nature of the product.

Bill Desellum - Titan Capital Management

When do your patents for the Swab line begin expiring?

Bill Hemelt

They begin expiring in 2018 and 2020.

Bill Desellum - Titan Capital Management

Great, thank you.

Operator

Your next question comes from Auk Tee with Touch Tone Investors.

Auk Tee - Touch Tone Investors

Can you talk about how much operating expense is actual advertising versus everything else? You did what $53 million for the year in operating expenses. How much of that is advertising and marketing?

Bill Barba

Of that a little bit over $31 million was marketing expense.

Auk Tee - Touch Tone Investors

I got it. Then can you give me any kind of break down for that? Is that mostly TV, mostly print, or some other form?

Bill Barba

Within that $31, I want to say between $20 and $22 was probably television advertising and the rest goes to print, online, social media, consumer research and other items.

Auk Tee - Touch Tone Investors

Okay and then were there any rebates and concessions and stuff with vendors? Is that discounted from sales, or is that also run through operating expenses?

Bill Barba

No, that is a gross to net sales deduction, anything we do at the retail.

Auk Tee - Touch Tone Investors

I got it, okay. Then do you give out any unit numbers or ASP information?

Bill Barba

We tend not to break down the unit numbers. We talk broadly about changes in selling price within the portfolio and then in the last Q I think we detailed out some of that affect from the increase of cold remedy and allergy sinus products.

Auk Tee - Touch Tone Investors

So, there is some unit data, but it is in the Qs and Ks is what you are saying?

Bill Barba

Yes, probably. We don’t spell it out down to the skew level.

Auk Tee - Touch Tone Investors

I got it, but you do like total units, like $30 million, $30.7 million is x number of units is sold across all lines?

Bill Barba

We haven’t broken it out that way.

Auk Tee - Touch Tone Investors

I got it, okay. Then you had mentioned that the swabs are 26% year-over-year and that they were what roughly 35% of sales this year; does that mean they are about 30% of sales last year? Am I doing that math right?

Bill Barba

I think my 35% also included Allergy Swabs.

Auk Tee - Touch Tone Investors

So that is all Swabs?

Bill Barba

Yes.

Auk Tee - Touch Tone Investors

And the 26% year-over-year that is just growth in cold?

Bill Barba

Last year the Swabs represented about 25%. The break down in the past had been 70%, 75% of our sales for Cold Remedy and that had been cold remedy and that had been split more evenly, Oral and Nasal. That is a similar break down to what we saw this year, but the Swabs are clearly growing much faster than the Nasal product.

Auk Tee - Touch Tone Investors

Okay and then the IRI data that you guys cited, which I believe you guys were up 1% year-over-year which is impressive considering what happened in the cold space. As far as that is segregated out, that would seem to indicate that your sales at club stores like Wal-Mart and Costco, who don’t release that data grew much more rapidly. Is that the case?

Bill Hemelt

Yes, we had tremendous success at the club stores, particularly Costco. I think we had about the 70% or 80% growth at Costco this year.

Auk Tee - Touch Tone Investors

Is that because you have more skews that went in there, or that is just because demand has picked up so much in that channel?

Bill Hemelt

We introduced a Swab product into Costco.

Auk Tee - Touch Tone Investors

Okay, but that is really the only major change year-over-year?

Bill Hemelt

Yes. I mean we have a big pallet display that goes in at the beginning of the season. In the prior year it included our nasal pump product, our multi-symptom, and RapidMelt. This year instead of the multi-symptom we put in the swab product.

Auk Tee - Touch Tone Investors

Got it, okay. Thanks for your time.

Operator

Your next question is a follow up question from Nick Genova - B. Riley & Company, Inc.

Nick Genova - B. Riley & Company, Inc

I have two follow up questions. The first is on multi-symptom. What was that segment as a percent of total revenues?

Bill Hemelt

I think we are down to maybe 5% to 8% or so.

Nick Genova - B. Riley & Company, Inc

What kind of feedback are you getting from retailers there, or what is your longer-term strategic outlook there? Do you guys plan on increasing advertising in that area, or what are your thoughts on that product line?

Bill Hemelt

We are going to continue the support to the extent that we think it makes sense. One of the things we have learned is that the Zicam name to consumers means get over your cold faster and it also means anything with a nasal application. Obviously our ability to extend that to our multi-symptom line and our other products has not been as successful. People are questioning what it means. Do I get over my cough faster, do I get over my flu symptoms faster etc…You can understand kind of the dilemma.

The spoon products, that we had as a multi-symptom form, that has been discontinued. The multi-symptom liquid, I believe, will continue to have some legs. Not just this season, but perhaps for another couple of seasons; if so we will advertise against it to maintain that.

Nick Genova - B. Riley & Company, Inc

All right, thanks.

Operator

Your next question comes from Walter Ramsey with Walrus Partners.

Walter Ramsey - Walrus Partners

Nice job on the quarter and the year.

The situation with the lawsuits, is that pretty much in the past now?

Bill Hemelt

No, I mean they continue, but I think the legal expense in this most recent quarter was down to about $300,000 to $400,000.00 which is less than certainly the guidance we had given for the year of $500, to $750. I think we ended the year at $2.2 million, but I think each quarter has been less than the preceding quarter. In the quarter we did achieve two additional Dahlberg decisions, so we now have ten, which is unprecedented in the legal world. So, we have had ten federal judges exclude the expert witnesses for the plaintiffs and consequently those cases have been dismissed. We have also had some plaintiffs lawyers say look I am not even going to bother to try to pursue the case and they have dropped their case. So, the number of cases, I think, are down to maybe about 10 to 12 kind of active cases right now and it continues to decline. So, it is still present, but it is diminishing.

Walter Ramsey - Walrus Partners

Okay, great. The price hike that was instituted in the last fiscal year, when did that go in and how big was it?

Bill Hemelt

The price hike was 5% in 2009. It was put in around July and August for some customers. I think it was fully implemented with all customers by October or November, and it was applied against our Cold Remedy line. On our Allergy Extreme and Sinus line we put in an 8% increase to get it up to the same parity level as the Cold Remedy line.

Walter Ramsey - Walrus Partners

So some of that will spill over into the current fiscal year?

Bill Hemelt

Yes. You will still see an effect of that price increase in the current quarter and even into the second quarter of the year.

Walter Ramsey - Walrus Partners

Then just one last thing about generics is there a generic product for the nasal, whatever you call it, the one that you squirt in your nose, basically the original product?

Bill Hemelt

I guess the Cold Remedy line? No. We haven’t seen anybody come forth with a pump version of the Cold Remedy gel. We do have a patent on the delivery of zinc lucinate to the nasal cavity within a certain viscosity range and so perhaps that is keeping them at bay.

Walter Ramsey - Walrus Partners

So at this point it is just the Melts and the Oral Spray?

Bill Hemelt

Yes.

Walter Ramsey - Walrus Partners

Is that a substantial part of your business, or how big of a problem is that?

Bill Hemelt

What I said before is about 20% of our overall sales are represented by those skews. One of the things we did this past year in anticipation of it was to introduce the RapidMelt with Vitamin C and Echinacea and that helped give us a recovery of sales in that category. That is the reason why we are introducing two new oral products this year, Zicam Cold Remedy oral products. Again, to the extent we can sort of split that category into a number of smaller sub categories we can maintain our share.

Walter Ramsey - Walrus Partners

Okay and then just one other thing. Back to that price hike, was there any evidence that the consumers expressed any resistance to the higher price?

Bill Hemelt

I would think that when you look at the overall category and what happened, I would say no. I will tell you that our research shows that Zicam users do tend to be above average income, but the price hike didn’t seem to affect our sales this year.

Walter Ramsey - Walrus Partners

Okay, thanks again. I appreciate it.

Operator

Your final question is a follow up question from Kevin Kendra with Gabelli & Company.

Kevin Kendra - Gabelli & Company

On the oral product, the Zicare, any updates there?

Bill Hemelt

The Zicare we continue to look at partnering with other companies to introduce that product as well as exit and we are exploring those possibilities.

Kevin Kendra - Gabelli & Company

Okay. Has there been any progress since your last conference call?

Bill Hemelt

There have been discussions, but I can’t go beyond that. There is interest, but nothing to report on.

Kevin Kendra - Gabelli & Company

Okay fair enough. Getting back to talking about doing acquisitions or buying up products. Can you give us an idea of what sort of deal metrics you would be looking at as far as maybe a multiple of sales or multiple of EBITDA, especially given where the Company currently trades?

Bill Hemelt

I can’t be that specific. I mean I have probably given more thought to the size of the deal that I would like, which would be something on the order of $30 to $50 million to make it worthwhile and easy to finance, over the counter consumer healthcare products, that and the ability to expand beyond the product offering. We are not interested in just buying an old brand. We will buy an old brand if we think there is a way where we can apply our R&D to it. When you start getting into EBITDA evaluations it is not a case of just taking existing brands. We are really more interested in what we can do with that existing brand in the future, which obviously isn’t shown or demonstrated by the current EIBTDA that it has.

Kevin Kendra - Gabelli & Company

Okay, so is it possible that were you to do a deal it would not be immediately accretive?

Bill Hemelt

I wouldn’t say that at all. It could be immediately accretive, but at this point I don’t have anything specific to say yeah or nay.

Kevin Kendra - Gabelli & Company

Okay and finally on price increases, is it possible that we could see those going forward, or was that more of a one-time event for the Company?

Bill Hemelt

I think right now we are not going to raise prices this year for sure. Beyond that who knows.

Kevin Kendra - Gabelli & Company

Okay thanks.

Operator

That concludes today’s question-and-answer session. At this time I would like to turn the call over to Mr. Bill Hemelt for closing remarks.

Bill Hemelt

Thank you again for taking the time to participate today. Naturally we are very pleased by these results, particularly in light of the current economic situation. I can assure you that management and employees are as strongly committed to delivering results in line with our guidance for fiscal year 2010 and I look forward to speaking with you again at our next quarterly phone call which is scheduled for late July. Thank you.

Operator

Thank you ladies and gentlemen. That does conclude today’s call. We appreciate your participation.

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