UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For |
OR |
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File No. 001-12575 |
UTAH MEDICAL PRODUCTS INC.
(Exact name of Registrant as specified in its charter)
Utah | 87-0342734 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
7043 South 300 West |
Midvale, Utah 84047 |
(Address of principal executive offices) (Zip Code) |
(801) 566-1200 |
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class: | Trading Symbol: | Name of each exchange on which registered: |
Common stock, $0.01 par value | UTMD | NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by SectionsSection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and;, and (2) has been subject to such filing requirements for the past 90 days. Yes☒
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock as of November 6, 2017: 3,720,600.
INDEX TO FORM 10‑Q
PAGE | ||
Consolidated Condensed Balance Sheets as of | 1 | |
2 | ||
3 | ||
4 | ||
5 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 7 | |
17 | ||
17 | ||
18 | ||
18 | ||
19 | ||
20 | ||
20 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES | |||
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF | |||
JUNE 30, 2022 AND DECEMBER 31, 2021 | |||
(in thousands) | |||
| (unaudited) |
| (audited) |
JUNE 30, 2022 |
| DECEMBER 31, 2021 | |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash & investments | $ 66,224 |
| $ 60,974 |
Accounts & other receivables, net | 4,938 |
| 5,132 |
Inventories | 7,338 |
| 6,596 |
Other current assets | 453 |
| 456 |
Total current assets | 78,953 |
| 73,158 |
Property and equipment, net | 10,171 |
| 10,618 |
Operating lease – right-of-use assets, net | 420 |
| 449 |
Goodwill | 13,396 |
| 14,098 |
Other intangible assets | 52,560 |
| 55,865 |
Other intangible assets - accumulated amortization | (39,351) |
| (38,552) |
Other intangible assets, net | 13,209 |
| 17,313 |
Total assets | $ 116,149 |
| $ 115,636 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
Current liabilities: |
|
|
|
Accounts payable | $ 818 |
| $ 761 |
Accrued expenses | 3,621 |
| 2,984 |
Total current liabilities | 4,439 |
| 3,745 |
Deferred tax liability – Femcare IIA | 1,707 |
| 2,105 |
Other long term liabilities | 1,675 |
| 1,675 |
Operating lease liability | 368 |
| 396 |
Deferred income taxes | 489 |
| 577 |
Total liabilities | 8,678 |
| 8,498 |
|
|
|
|
Stockholders' equity: |
|
|
|
Common stock - $0.01 par value; authorized - 50,000 shares; issued and outstanding - June 30, 2022, 3,625 shares and December 31, 2021, 3,655 shares | 36 |
| 37 |
Accumulated other comprehensive loss | (11,858) |
| (9,054) |
Additional paid-in capital | - |
| 841 |
Retained earnings | 119,293 |
| 115,314 |
Total stockholders' equity | 107,471 |
| 107,138 |
|
|
|
|
Total liabilities and stockholders' equity | $ 116,149 |
| $ 115,636 |
|
|
|
|
see notes to consolidated condensed financial statements |
|
|
|
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES | ||||||||
CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE | ||||||||
THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | ||||||||
(in thousands, except per share amounts - unaudited) | ||||||||
| ||||||||
|
| Three Months Ended |
| Six Months Ended | ||||
|
| June 30, 2022 |
| June 30, 2021 |
| June 30, 2022 |
| June 30, 2021 |
|
|
|
| |||||
Sales, net |
| $ 13,428 |
| $ 12,604 |
| $ 25,752 |
| $ 23,568 |
|
|
|
|
|
|
|
|
|
Cost of goods sold |
| 5,277 |
| 4,819 |
| 10,069 |
| 8,836 |
Gross profit |
| 8,151 |
| 7,785 |
| 15,683 |
| 14,732 |
|
|
|
|
|
|
|
|
|
Operating expense |
|
|
|
|
|
|
|
|
Selling, general and administrative |
| 2,959 |
| 2,892 |
| 5,846 |
| 5,821 |
Research & development |
| 135 |
| 128 |
| 258 |
| 259 |
Total operating expenses |
| 3,094 |
| 3,020 |
| 6,104 |
| 6,080 |
Operating income |
| 5,057 |
| 4,765 |
| 9,579 |
| 8,652 |
|
|
|
|
|
|
|
|
|
Other income |
| 142 |
| 60 |
| 150 |
| 71 |
Income before provision for income taxes |
| 5,199 |
| 4,825 |
| 9,729 |
| 8,723 |
|
|
|
|
|
|
|
|
|
Provision for income taxes |
| 1,096 |
| 1,399 |
| 2,091 |
| 2,273 |
Net income |
| $ 4,103 |
| $ 3,426 |
| $ 7,638 |
| $ 6,450 |
|
|
|
|
|
|
|
|
|
Earnings per common share (basic) |
| $ 1.13 |
| $ 0.94 |
| $ 2.09 |
| $ 1.77 |
|
|
|
|
|
|
|
|
|
Earnings per common share (diluted) |
| $ 1.12 |
| $ 0.94 |
| $ 2.09 |
| $ 1.76 |
|
|
|
|
|
|
|
|
|
Shares outstanding - basic |
| 3,643 |
| 3,646 |
| 3,649 |
| 3,645 |
|
|
|
|
|
|
|
|
|
Shares outstanding - diluted |
| 3,650 |
| 3,655 |
| 3,658 |
| 3,656 |
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Foreign currency translation net of taxes of $0 in all periods |
| $ (2,298) |
| $ 49 |
| $ (2,804) |
| $ (5) |
Total comprehensive income |
| $ 1,805 |
| $ 3,475 |
| $ 4,834 |
| $ 6,445 |
|
|
|
|
|
|
|
|
|
see notes to consolidated condensed financial statements |
|
|
|
|
|
|
|
|
| Item 1. Financial Statements | ||||||||
| CONSOLIDATED CONDENSED BALANCE SHEETS AS OF | ||||||||
| SEPTEMBER 30, 2017 AND DECEMBER 31, 2016 | ||||||||
| (in thousands) | ||||||||
| (unaudited) | (audited) | |||||||
| ASSETS | SEPTEMBER 30, 2017 | DECEMBER 31, 2016 | ||||||
| Current assets: | ||||||||
| Cash | $ | 37,438 | $ | 26,296 | ||||
| Investments, available-for-sale | 78 | 64 | ||||||
| Accounts & other receivables, net | 4,730 | 3,211 | ||||||
| Inventories | 5,042 | 4,542 | ||||||
| Other current assets | 733 | 754 | ||||||
| Total current assets | 48,021 | 34,867 | ||||||
| Property and equipment, net | 10,407 | 9,966 | ||||||
| Goodwill | 14,028 | 13,487 | ||||||
| Other intangible assets | 34,507 | 31,947 | ||||||
| Other intangible assets - accumulated amortization | (16,288 | ) | (13,683 | ) | ||||
| Other intangible assets, net | 18,219 | 18,264 | ||||||
| Total assets | $ | 90,675 | $ | 76,584 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,125 | $ | 906 | ||||
| Accrued expenses | 4,058 | 2,116 | ||||||
| Total current liabilities | 5,183 | 3,022 | ||||||
| Deferred tax liability - intangible assets | 3,176 | 3,209 | ||||||
| Deferred income taxes | 1,119 | 1,109 | ||||||
| Total liabilities | 9,478 | 7,340 | ||||||
| Stockholders' equity: | ||||||||
| Preferred stock - $.01 par value; authorized - 5,000 shares; no shares issued or outstanding | - | - | ||||||
| Common stock - $.01 par value; authorized - 50,000 shares; issued - September 30, 2017, 3,719 shares and December 31, 2016, 3,713 shares | 37 | 37 | ||||||
| Accumulated other comprehensive income (loss) | (8,686 | ) | (12,243 | ) | ||||
| Additional paid-in capital | 701 | 378 | ||||||
| Retained earnings | 89,145 | 81,072 | ||||||
| Total stockholders' equity | 81,197 | 69,244 | ||||||
| Total liabilities and stockholders' equity | $ | 90,675 | $ | 76,584 | ||||
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES | ||||
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS | ||||
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021 | ||||
(in thousands - unaudited) | ||||
|
| Six Months Ended | ||
| 2022 |
| 2021 | |
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
Net income |
| $ 7,638 |
| $ 6,450 |
Adjustments to reconcile net income to net |
|
|
|
|
Depreciation |
| 302 |
| 325 |
Amortization |
| 3,257 |
| 3,335 |
Provision for (recovery of) losses on accounts receivable |
| 26 |
| 8 |
Amortization of Right-of-Use Assets |
| 26 |
| 21 |
Deferred income taxes |
| (286) |
| 22 |
Stock-based compensation expense |
| 83 |
| 82 |
Tax benefit attributable to exercise of stock options |
| - |
| 5 |
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable and other receivables |
| 102 |
| (517) |
Inventories |
| (930) |
| 75 |
Prepaid expenses and other current assets |
| (47) |
| (14) |
Accounts payable |
| 64 |
| 399 |
Accrued expenses |
| (357) |
| 34 |
Total adjustments |
| 2,240 |
| 3,775 |
Net cash provided by operating activities |
| 9,878 |
| 10,225 |
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
Capital expenditures for: |
|
|
|
|
Property and equipment |
| (450) |
| (222) |
Intangible assets |
| (9) |
| - |
Net cash used in investing activities |
| (459) |
| (222) |
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
Proceeds from issuance of common stock - options |
| 23 |
| 92 |
Common stock purchased and retired |
| (2,495) |
| - |
Payment of dividends |
| (1,060) |
| (2,077) |
Net cash used in financing activities |
| (3,532) |
| (1,985) |
|
|
|
|
|
Effect of exchange rate changes on cash |
| (637) |
| (102) |
Net increase in cash and cash equivalents |
| 5,250 |
| 7,916 |
Cash at beginning of period |
| 60,974 |
| 51,590 |
Cash at end of period |
| $ 66,224 |
| $ 59,506 |
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
| |
Cash paid during the period for income taxes |
| $ 2,467 |
| $ 2,279 |
Cash paid during the period for interest |
| - |
| - |
|
|
|
|
|
see notes to consolidated condensed financial statements |
|
|
|
|
| CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE | ||||||||||||||||
| THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND SEPTEMBER 30, 2016 | ||||||||||||||||
| (in thousands, except per share amounts - unaudited) | ||||||||||||||||
| THREE MONTHS ENDED | NINE MONTHS ENDED | |||||||||||||||
| SEPTEMBER 30, | SEPTEMBER 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Sales, net | $ | 10,125 | $ | 9,655 | $ | 31,213 | $ | 30,446 | ||||||||
| Cost of goods sold | 3,629 | 3,880 | 11,288 | 12,196 | ||||||||||||
| Gross profit | 6,496 | 5,775 | 19,925 | 18,250 | ||||||||||||
| Operating expense | ||||||||||||||||
| Selling, general and administrative | 1,714 | 1,701 | 5,146 | 5,320 | ||||||||||||
| Research & development | 103 | 135 | 341 | 364 | ||||||||||||
| Total operating expense | 1,817 | 1,836 | 5,487 | 5,684 | ||||||||||||
| Operating income | 4,679 | 3,939 | 14,438 | 12,566 | ||||||||||||
| Other income (expense) | 17 | 41 | 65 | 206 | ||||||||||||
| Income before provision for income taxes | 4,696 | 3,980 | 14,503 | 12,772 | ||||||||||||
| Provision for income taxes | 1,074 | 1,045 | 3,476 | 3,361 | ||||||||||||
| Net income | $ | 3,622 | $ | 2,935 | $ | 11,027 | $ | 9,411 | ||||||||
| Earnings per common share (basic) | $ | 0.97 | $ | 0.78 | $ | 2.97 | $ | 2.50 | ||||||||
| Earnings per common share (diluted) | $ | 0.97 | $ | 0.78 | $ | 2.95 | $ | 2.49 | ||||||||
| Shares outstanding - basic | 3,719 | 3,761 | 3,716 | 3,757 | ||||||||||||
| Shares outstanding - diluted | 3,738 | 3,778 | 3,734 | 3,775 | ||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation net of taxes of $0 in all periods | $ | 1,219 | $ | (430 | ) | $ | 3,550 | $ | (3,856 | ) | ||||||
| Unrealized gain (loss) on investments net of taxes of $2, $2, $5 and ($2) | 4 | 3 | 9 | (3 | ) | |||||||||||
| Total comprehensive income | $ | 4,845 | $ | 2,508 | $ | 14,586 | $ | 5,552 | ||||||||
UTAH MEDICAL PRODUCTS, INC. | |||||||||||
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE | |||||||||||
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021 | |||||||||||
(In thousands - unaudited) | |||||||||||
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| Additional |
| Other |
|
|
| Total |
| Common Stock |
| Paid-in |
| Comprehensive |
| Retained |
| Stockholders' | ||
Shares |
| Amount |
| Capital |
| Income (Loss) |
| Earnings |
| Equity | |
Balance at December 31, 2021 | 3,655 |
| $ 37 |
| $ 841 |
| $ (9,054) |
| $ 115,314 |
| $ 107,138 |
Shares issued upon exercise of employee | - |
| - |
| 19 |
| - |
| - |
| 19 |
Stock option compensation expense | - |
| - |
| 43 |
| - |
| - |
| 43 |
Foreign currency translation adjustment | - |
| - |
| - |
| (506) |
| - |
| (506) |
Common stock dividends | - |
| - |
| - |
| - |
| (1,060) |
| (1,060) |
Net income | - |
| - |
| - |
| - |
| 3,534 |
| 3,534 |
Balance at March 31, 2022 | 3,655 |
| $ 37 |
| $ 903 |
| $ (9,560) |
| $ 117,789 |
| $ 109,168 |
Shares issued upon exercise of employee | - |
| - |
| 4 |
| - |
| - |
| 4 |
Stock option compensation expense | - |
| - |
| 40 |
| - |
| - |
| 40 |
Common stock purchased and retired | (30) |
| - |
| (947) |
| - |
| (1,548) |
| (2,495) |
Foreign currency translation adjustment | - |
| - |
| - |
| (2,298) |
| - |
| (2,298) |
Common stock dividends | - |
| - |
| - |
| - |
| (1,051) |
| (1,051) |
Net income | - |
| - |
| - |
| - |
| 4,103 |
| 4,103 |
Balance at June 30, 2022 | 3,625 |
| $ 36 |
| $ - |
| $ (11,858) |
| $ 119,293 |
| $ 107,471 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 | 3,643 |
| $ 36 |
| $ 115 |
| $ (8,281) |
| $ 110,952 |
| $ 102,822 |
Shares issued upon exercise of employee | 3 |
| - |
| 89 |
| - |
| - |
| 89 |
Stock option compensation expense | - |
| - |
| 41 |
| - |
| - |
| 41 |
Foreign currency translation adjustment | - |
| - |
| - |
| (54) |
| - |
| (54) |
Common stock dividends | - |
| - |
| - |
| - |
| (1,039) |
| (1,039) |
Net income | - |
| - |
| - |
| - |
| 3,024 |
| 3,024 |
Balance at March 31, 2021 | 3,646 |
| $ 36 |
| $ 245 |
| $ (8,335) |
| $ 112,937 |
| $ 104,883 |
Shares issued upon exercise of employee | - |
| - |
| 3 |
| - |
| - |
| 3 |
Stock option compensation expense | - |
| - |
| 41 |
| - |
| - |
| 41 |
Foreign currency translation adjustment | - |
| - |
| - |
| 49 |
| - |
| 49 |
Common stock dividends | - |
| - |
| - |
| - |
| (1,037) |
| (1,037) |
Net income | - |
| - |
| - |
| - |
| 3,426 |
| 3,426 |
Balance at June 30, 2021 | 3,646 |
| $ 36 |
| $ 289 |
| $ (8,286) |
| $ 115,326 |
| $ 107,365 |
|
|
|
|
|
|
|
|
|
|
|
|
see notes to consolidated condensed financial statements |
|
|
|
|
|
|
|
|
|
|
|
| CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS | ||||||||
| FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND SEPTEMBER 30, 2016 | ||||||||
| (in thousands - unaudited) | ||||||||
| SEPTEMBER 30, | ||||||||
| 2017 | 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 11,027 | $ | 9,411 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | 489 | 452 | ||||||
| Amortization | 1,568 | 1,714 | ||||||
| Provision for (recovery of) losses on accounts receivable | (2 | ) | 0 | |||||
| (Gain) loss on disposal of assets | - | 5 | ||||||
| Deferred income taxes | (281 | ) | (351 | ) | ||||
| Stock-based compensation expense | 99 | 62 | ||||||
| Tax benefit attributable to exercise of stock options | 25 | 37 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable - trade | (1,340 | ) | (510 | ) | ||||
| Accrued interest and other receivables | (5 | ) | (35 | ) | ||||
| Inventories | (301 | ) | (222 | ) | ||||
| Prepaid expenses and other current assets | 40 | 36 | ||||||
| Accounts payable | 201 | 316 | ||||||
| Accrued expenses | 803 | 228 | ||||||
| Total adjustments | 1,296 | 1,732 | ||||||
| Net cash provided by operating activities | 12,323 | 11,143 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Capital expenditures for: | ||||||||
| Property and equipment | (174 | ) | (237 | ) | ||||
| Intangible assets | - | (9 | ) | |||||
| Net cash (used in) provided by investing activities | (174 | ) | (246 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock - options | 224 | 306 | ||||||
| Payment of dividends | (1,969 | ) | (1,954 | ) | ||||
| Net cash (used in) provided by financing activities | (1,745 | ) | (1,648 | ) | ||||
| Effect of exchange rate changes on cash | 738 | (971 | ) | |||||
| Net increase in cash and cash equivalents | 11,142 | 8,278 | ||||||
| Cash at beginning of period | 26,296 | 23,278 | ||||||
| Cash at end of period | $ | 37,438 | $ | 31,556 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for income taxes | $ | 3,753 | $ | 3,342 | ||||
| Cash paid during the period for interest | - | - | ||||||
(1) The unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States. These statements should be read in conjunction with the financial statements and notes included in the Utah Medical Products, Inc. ("UTMD" or "the Company") annual report on Form 10‑10 K for the year ended December 31, 2016.2021. In the opinion of management, the accompanying financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company's financial position and results of operations. Currency amounts are in thousands except per-share amounts and where noted.
(2) Recent Accounting Standards. In March 2016, new
The Company has determined that recently issued accounting guidance was issued to simplify several aspects of accounting for employee share-based payment (including stock option) transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. Under the guidance, entities recognize all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement. UTMD adopted this standard on January 1, 2017, which had an insignificantstandards will either have no material impact on its consolidated financial statements. UTMD made a determination to continue to account for forfeitures by estimating the numberposition or results of awards that are expected to vest. Because UTMD primarily issues incentive stock options, excess tax benefits and tax deficiencies have historically been minimal.
(3) Inventories at SeptemberJune 30, 20172022 and December 31, 20162021 consisted of the following:
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Finished goods | $ | 982 | $ | 1,327 | ||||
| Work‑in‑process | 1,580 | 942 | ||||||
| Raw materials | 2,480 | 2,273 | ||||||
| Total | $ | 5,042 | $ | 4,542 | ||||
| June 30, 2022 |
|
| December 31, 2021 | |
Finished goods | $ | 1,622 |
| $ | 1,468 |
Work-in-process |
| 1,290 |
|
| 1,398 |
Raw materials |
| 4,426 |
|
| 3,730 |
Total | $ | 7,338 |
| $ | 6,596 |
(4)
Stock-Based Compensation. At(5) Warranty Reserve. The Company'sCompany’s published warranty is: "UTMD“UTMD warrants its products to conform in all material respects to all published product specifications in effect on the date of shipment, and to be free from defects in material and workmanship for a period of thirty (30) days for supplies, or twenty-four (24) months for equipment, from date of shipment. During the warranty period UTMD shall, at its option, replace any products shown to UTMD's reasonable satisfaction to be defective at no expense to the Purchaser or refund the purchase price."
UTMD maintains a warranty reserve to provide for estimated costs which are likely to occur. The amount of this reserve is adjusted, as required, to reflect its actual experience. Based on its analysis of historical warranty claims and its estimate that existing warranty obligations were immaterial, no warranty reserve was made at December 31, 20162021 or SeptemberJune 30, 2017.
(6) Global 2Q 2022 revenues (USD) by product category:
|
| Domestic |
|
| Outside US |
|
| Total | |
Obstetrics |
| $ | 1,006 |
| $ | 200 |
| $ | 1,206 |
Gynecology/Electrosurgery/Urology |
|
| 2,394 |
|
| 3,029 |
|
| 5,423 |
Neonatal |
|
| 1,514 |
|
| 399 |
|
| 1,913 |
Blood Pressure Monitoring and Accessories |
|
| 2,915 |
|
| 1,971 |
|
| 4,886 |
Total |
| $ | 7,829 |
| $ | 5,599 |
| $ | 13,428 |
Global 1H 2022 revenues (USD) by product category:
|
| Domestic |
|
| Outside US |
|
| Total | |
Obstetrics |
| $ | 1,929 |
| $ | 326 |
| $ | 2,255 |
Gynecology/Electrosurgery/Urology |
|
| 4,975 |
|
| 5,550 |
|
| 10,525 |
Neonatal |
|
| 3,096 |
|
| 690 |
|
| 3,786 |
Blood Pressure Monitoring and Accessories |
|
| 5,813 |
|
| 3,373 |
|
| 9,186 |
Total |
| $ | 15,813 |
| $ | 9,939 |
| $ | 25,752 |
(7) Distribution Agreement Purchase. UTMD completed the purchase of exclusive U.S. distribution rights for the Filshie® Clip System from CooperSurgical, Inc. (CSI) on February 1, 2019. The Company follows ASC 820, Fair Value Measurement$21,000 purchase price represented an identifiable intangible asset which is being straight-line amortized and recognized as part of G&A expenses over a remaining 1.33 year life as of June 30, 2022 of the prior CSI distribution agreement with Femcare.
(8) Earnings Per Share. Basic earnings per share is calculated by dividing net income attributable to determine fair valuethe common stockholders of its financial assets. the company by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by assuming the exercise of stock options at the closing price of stock on June 30, 2022.
The following table provides financial assets carried at fair value measured as of September 30, 2017:
| Fair Value Measurements Using | ||||||||||||||||
| Description | Total Fair Value at 9/30/2017 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3 ) | ||||||||||||
| Equities | $ | 78 | $ | 78 | $ | 0 | $ | 0 | ||||||||
(in thousands) | Three months ended |
| Six months ended | ||||
| June 30, |
| June 30, | ||||
2022 |
| 2021 |
| 2022 |
| 2021 | |
Numerator |
|
|
|
|
|
|
|
Net income | 4,103 |
| 3,426 |
| 7,638 |
| 6,450 |
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
Weighted average shares, basic | 3,643 |
| 3,646 |
| 3,649 |
| 3,645 |
Dilutive effect of stock options | 7 |
| 9 |
| 9 |
| 11 |
Diluted shares | 3,650 |
| 3,655 |
| 3,658 |
| 3,656 |
|
|
|
|
|
|
|
|
Earnings per share, basic | 1.13 |
| 0.94 |
| 2.09 |
| 1.77 |
Earnings per share, diluted | 1.12 |
| 0.94 |
| 2.09 |
| 1.76 |
(9) Subsequent Events.UTMD has evaluated subsequent events through the date the financial statements were issued, and concluded there were no other events or transactions during this period that required recognition or disclosure in its financial statements.
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
General
Utah Medical Products, Inc. (UTMD) manufactures and markets a well-established range of specialty medical devices. The Company'sCompany’s Form 10-K Annual Report for the year ended December 31, 20162021 provides a detailed description of products, technologies, markets, regulatory issues, business initiatives, resources and business risks, among other details, and should be read in conjunction with this report. Because of the relatively short span of time, results for any given three or six month period in comparison with a previous three or six month period may not be indicative of comparative results for the year as a whole. Currency amounts in the report are in thousands, except per share amounts or where otherwise noted. Currencies in this report are denoted as $ or USD = U.S. Dollars; A$ or AUD = Australia Dollars; £ or GBP = UK Pound Sterling; C$ or CAD = Canadian Dollars; and € or EUR = Euros.
Analysis of Results of Operations
a)
OverviewIncome statement results in 3Q2Q and 9M 20171H 2022 compared to the same periods of 20162021 were as follows:
| 3Q 2017 | 3Q 2016 | change | 9M 2017 | 9M 2016 | change | |||||||||||||||||||
| Net Sales | $ | 10,125 | $ | 9,655 | +4.9 | % | $ | 31,213 | $ | 30,446 | +2.5 | % | ||||||||||||
| Gross Profit | 6,496 | 5,775 | +12.5 | % | 19,925 | 18,250 | +9.2 | % | ||||||||||||||||
| Operating Income | 4,679 | 3,939 | +18.8 | % | 14,438 | 12,566 | +14.9 | % | ||||||||||||||||
| Income Before Tax | 4,696 | 3,980 | +18.0 | % | 14,503 | 12,772 | +13.6 | % | ||||||||||||||||
| Net Income | 3,622 | 2,935 | +23.4 | % | 11,027 | 9,411 | +17.2 | % | ||||||||||||||||
| Earnings per Diluted Share | 0.969 | 0.777 | +24.7 | % | 2.953 | 2.493 | +18.5 | % | ||||||||||||||||
| 2Q 2022 | 2Q 2021 | change | 1H 2022 | 1H 2021 | change |
Net Sales | $ 13,428 | $ 12,604 | +6.5% | $ 25,752 | $ 23,568 | +9.3% |
Gross Profit | 8,151 | 7,785 | 4.7% | 15,683 | 14,732 | 6.5% |
Operating Income | 5,057 | 4,765 | 6.1% | 9,579 | 8,652 | 10.7% |
Income Before Tax | 5,199 | 4,825 | 7.7% | 9,729 | 8,723 | 11.5% |
Net Income (US GAAP) | 4,103 | 3,426 | 19.7% | 7,638 | 6,450 | 18.4% |
Earnings per Diluted Share | 1.124 | 0.937 | 19.9% | 2.088 | 1.765 | 18.3% |
The comparisons of 2Q and 1H 2022 results with the results in the same periods of 2021, according to prior calendar quarters, UTMD's relative 3Q performance was enhancedU.S. Generally Accepted Accounting Principles (US GAAP), were affected by a weaker USD. Because the initial large impact of BREXITlong term deferred tax liability increase on the valuebalance of Femcare intangible assets (the amortization of which is not tax-deductible in the GBP occurredUK) in late 2Q 2016,2021. The 2Q 2021 $390 increase in deferred UK taxes over the next five years resulted from the fact that the UK decided to increase its corporate income tax rate from 19% to 25% beginning on April 1, 2023. Therefore, the remaining amortization of Femcare intangible assets from April 1, 2023 through March 11, 2026 will have a 6% ($390) higher income tax impact. According to US GAAP, a deferred tax liability increase must be booked in the quarter in which the tax law change is enacted. UTMD management believes that the presentation of results excluding the unfavorable deferred tax liability adjustments to its 2021 income tax provisions provides meaningful supplemental information to both management and investors that is more clearly indicative of UTMD’s operating results in relative value of the USD to the GBP in 3Q 20172022 compared to 3Q 2016 was minimal. Revenues in 3Q 2017 would have been $71 lower using2021. Please note that the same foreign currency exchange (FX) ratesnon-US GAAP exclusion of tax provision adjustments only affects Net Income and Earnings Per Diluted Share (EPS), as infollows:
| 2Q 2022 | 2Q 2021 |
| 1H 2022 | 1H 2021 |
|
Net Income (non-US GAAP) | 4,103 | 3,817 | +7.5% | 7,638 | 6,840 | +11.7% |
EPS (non-US GAAP) | 1.124 | 1.044 | 7.7% | 2.088 | 1.871 | 11.6% |
The non-US GAAP comparisons of Net Income and EPS with the prior year ("constant dollars"), but because ofyear’s same periods were consistent with the effect of BREXIT in first half (1H) 2017 compared to 1H 2016, revenues in 9M 2017 would have been $235Income Before Tax comparisons. Income Before Tax obviously is not affected by income tax provisions.
Consolidated USD sales were 6.5% higher in constant dollars. UTMD's FX rates for income statement purposes are transaction-weighted averages. The average rates from the applicable foreign currency to USD during 3Q 20172Q 2022 and 9M 20179.3% higher in 1H 2022 higher compared to the same periods in 2016 follow:
| 3Q 2017 | 3Q 2016 | Change | 9M 2017 | 9M 2016 | Change | |||||||||||||||||||
| GBP | 1.312 | 1.314 | (0.1 | %) | 1.277 | 1.393 | (8.3 | %) | ||||||||||||||||
| EUR | 1.172 | 1.118 | +4.8 | % | 1.116 | 1.116 | - | |||||||||||||||||
| AUD | 0.789 | 0.759 | +4.0 | % | 0.766 | 0.744 | +3.0 | % | ||||||||||||||||
Sales in 9M 2017
U.S. domestic sales in 2Q 2022 were 2.4% lower than in 2Q 2021, and 6.8% higher in 1H 2022 than in 1H 2021. Sales in 2Q 2022 to customers outside the U.S. (OUS) were 22.2% higher in USD terms, but 32.2% higher using the same FX rates as in 2Q 2021 (“constant currency”). Sales in 1H 2022 to OUS customers were 13.4% higher in USD terms, but 20.4% higher in constant currency.
Gross Profit Margin (GPM), Gross Profitprofits (GP) divided by sales, improved to 64.2% in 3Q 2017 compared to 59.8% in 3Q 2016, and 63.8% in 9M 2017 compared to 59.9% in 9M 2016,increased less than revenues primarily due to inflation in the 2017 conversionvariable costs of manufacturing, despite better absorption of fixed manufacturing overhead costs with higher sales. On the Operating Income line, the lower GP margins (GP divided by sales) in both 2Q and 1H periods were offset by the impact of a stronger USD on the foreign currency expenses of UTMD’s overseas subsidiaries, as well as better absorption of USD fixed identifiable intangible asset (IIA) amortization expenses which resulted from distributor sales to direct end-user salesUTMD’s February 2019 acquisition of CooperSurgical Inc’s (CSI’s) U.S. exclusive distribution rights for the Filshie Clip SystemSystem. Operating Income represented 37.7% of sales in France and Canada. Consolidated Operating Expenses (OE) were $19 lower in 3Q 20172Q 2022 compared to 3Q 2016,37.8% of sales in 2Q 2021, and $196 lower37.2% of sales in 9M 20171H 2022 compared to 9M 2016. Included36.7% of sales in G&A OE, the UK amortization of Identifiable Intangible Assets (IIA) expense1H 2021. UTMD was about the same in 3Q 2017 but $145 lower in 9M 2017 dueable to the weaker GBP in first half 2017 compared to first half 2016, accounting for most of the 9M lower OE. The combination of lower OE and higher GPM spurred a 15% increase in 9M 2017maintain consistent Operating Income (OI) with just a 3% increasemargins despite the lower GPMs and litigation expenses which it did not have in revenues. The 17% higher the prior year.
Net Income (NI) in 9M 2017 was a result of the 15% higher OI plus 1) a reduction in the corporate income tax rate in the UK starting in 2Q 2017, and 2) a lower tax provision in the UK and Ireland based on translation of USD cash balances in those sovereignties when converted to their respective native currencies.
| 2Q 2022 | 2Q 2021 | 1H 2022 | 1H 2021 |
Average Consolidated Income Tax Provision Rate (US GAAP) | 21.1% | 29.0% | 21.5% | 26.1% |
Average Consolidated Income Tax Provision Rate (non-GAAP) | 21.1% | 20.9% | 21.5% | 21.6% |
The impact of the 17% higher NI together2Q 2021 deferred tax adjustment is apparent when comparing the US GAAP income tax provision rates with the benefitnon-US GAAP rates.
The percentage increase in 2Q 2022 EPS compared to 2Q 2021 EPS was slightly higher than the increase in Net Income because of 50,000 shares repurchased in 4Q 2016. EPS for the most recent twelve months (TTM) were $3.68.
UTMD profit margins in 3Q 20172Q 2022 and 9M 20171H 2022 compared to 3Q 20162Q 2021 and 9M 20161H 2021 follow:
3Q 2017 (Jul-Sep) | 3Q 2016 (Jul-Sep) | 9M 2017 (Jan-Sep) | 9M 2016 (Jan-Sep) | |||||||||||||
| Gross Profit Margin (gross profit/ sales): | 64.2 | % | 59.8 | % | 63.8 | % | 59.9 | % | ||||||||
| Operating Income Margin (operating income/ sales): | 46.2 | % | 40.8 | % | 46.3 | % | 41.3 | % | ||||||||
| EBT Margin (profit before income taxes/ sales): | 46.4 | % | 41.2 | % | 46.5 | % | 42.0 | % | ||||||||
| Net Income Margin (profit after taxes/ sales): | 35.8 | % | 30.4 | % | 35.3 | % | 30.9 | % | ||||||||
| 2Q 2022 (Apr – Jun) | 2Q 2021 (Apr – Jun) | 1H 2022 (Jan – Jun) | 1H 2021 (Jan – Jun) |
Gross Profit Margin (gross profits/ sales): | 60.7% | 61.8% | 60.9% | 62.5% |
Operating Income Margin (operating profits/ sales): | 37.7% | 37.8% | 37.2% | 36.7% |
Net Income Margin (US GAAP): | 30.6% | 27.2% | 29.7% | 27.4% |
Net Income Margin (Non-US GAAP, B4 DTL Adj): | 30.6% | 30.3% | 29.7% | 29.0% |
Note: The Net Income Margin is Net Income after subtracting a provision for income taxes divided by sales. | ||||
UTMD’s June 30, 2022 Balance Sheet continued to strengthen. September 30, 2017 endingstrong, with no debt. Ending Cash and Investments were up $11.2$66.2 million and Stockholders' Equity was up $12.0on June 30, 2022 compared to $61.0 million fromon December 31, 2016. FX2021. The June 30, 2022 cash balance resulted after paying $1.1 million in cash dividends to stockholders and repurchasing $2.5 million in UTMD stock during 2Q 2022. During the last twelve months (TTM) since June 30, 2021, UTMD has returned $12,943 to stockholders in the form of cash dividends and UTMD share repurchases.
Foreign currency exchange (FX) rates for Balance Sheet purposes are the applicable rates at the end of each reporting period. The FX rates from the applicable foreign currenciescurrency to USD for assets and liabilities at the end of September 20172Q 2022 compared to the end of calendar year 2021 and the end of September 2016 follow:
| SEP 30, 2017 | SEP 30, 2016 | change | ||||||||||
| GBP | 1.340 | 1.301 | +3.0 | % | ||||||||
| EUR | 1.181 | 1.124 | +5.1 | % | ||||||||
| AUD | 0.784 | 0.767 | +2.3 | % | ||||||||
| CAD | 0.799 | 0.762 | +4.9 | % | ||||||||
| 6-30-22 | 12-31-21 | Change | 6-30-21 | Change |
GBP | 1.21601 | 1.35358 | (10.2%) | 1.38065 | (11.9%) |
EUR | 1.04657 | 1.13765 | (8.0%) | 1.18514 | (11.7%) |
AUD | 0.69042 | 0.72678 | (5.0%) | 0.74952 | (7.9%) |
CAD | 0.77691 | 0.79016 | (1.7%) | 0.80619 | (3.6%) |
b)
RevenuesTerms of sale are established in advance of UTMD'sUTMD’s acceptance of customer orders. In the U.S., Canada, Ireland, UK, France, Canada, Australia and Australia,New Zealand, UTMD generally accepts orders directly from and ships directly to end user clinicalmedical facilities, as well as third party med/surgmedical/surgical distributors, under UTMD'sUTMD’s Standard Terms and Conditions (T&C) of Sale. About 14%UTMD’s T&C of UTMD's U.S. domesticSale to end user sales go through third party med/surg distributors which contract separately with clinical facilities to provide purchasing, storage and scheduled delivery functions for the applicable facility. UTMD's T&C of Sale are substantially the same in the U.S., Canada, Ireland, UK, France and Australia. In other geographic regions,OUS. UTMD sells its devices to third party distributors which then distribute the devices to medical facilities within their designated territories. UTMD'salso has standard T&C of Sale for its international distributorsOEM customers, other medical device and non-medical device customers for components manufactured by UTMD, which are substantially the same.same, except that prices are generally quoted prior to acceptance of each order.
UTMD may have separate discounted pricing agreements with a specific clinical facility, or group of affiliated facilities or large OEM customers based on volume of purchases. Pricing agreements which are documented arrangements with clinical facilities, or groups of affiliated facilities or OEM customers, if applicable, are established in advance of orders accepted or shipments made. For existing customers, past actual shipment volumes typically determine the fixed price by part number for the next agreement period of one year. For new customers, the customer'scustomer’s best estimate of volume is usually accepted by UTMD for determining the ensuing fixed prices for the agreement period. Except on rare occasions such as when customers do not meet prepayment agreements, pricesPrices are not adjusted after an order is accepted. For the sake of clarity, the separate pricing agreements with clinical facilities based on volume of purchases disclosure is not inconsistent with UTMD'sUTMD’s disclosure above that the selling price is fixed prior to the acceptance of a specific customer order.
2Q 2022 Sales
Total 3Q 2017 consolidated 2Q 2022 UTMD worldwide (WW) sales were $471 (4.9%$824 (+6.5%) higher than in 3Q 2016,2Q 2021. Without the negative impact of a stronger USD in converting foreign currency sales, WW constant currency sales were $1,280 higher (+10.2%) than in 2Q 2021, which was the second highest sales quarter of 2021. “Constant currency” sales means exchanging foreign currency sales into USD-denominated sales at the same FX rate as was in the previous period of time being compared.
Overall 2Q 2022 U.S. domestic sales were 2.4% lower and outside the U.S. (OUS) sales were 22.2% higher, despite an FX rate $456 (10.6%) negative impact on sales invoiced in 9M 2017foreign currencies. In other words, 2Q 2022 constant currency OUS sales were $768 (2.5%32.2% higher than in 2Q 2021. In 2021, U.S. domestic sales recovered from the COVID-19 pandemic faster than OUS sales. In 2022, it appears that OUS sales are catching up with the U.S. recovery.
Domestic U.S. sales in 2Q 2022 were $7,829 compared to $8,023 in 2Q 2021. Domestic sales are invoiced in USD and not subject to FX rate fluctuations. The components of domestic sales include 1) “direct non-Filshie device sales” of UTMD’s medical devices to user facilities (and med/surg stocking distributors for hospitals), 2) “OEM sales” of components and other products manufactured by UTMD for other medical device and non-medical device companies, and 3) “domestic Filshie device sales”. UTMD separates domestic Filshie device sales from other medical device sales direct to medical facilities because UTMD is simply a distributor for Femcare in the U.S. Direct non-Filshie device sales, representing 51% of total domestic sales, were $266 (+7.1%) higher in 2Q 2022 than in 2Q 2021. Domestic OEM sales, representing 34% of total domestic sales, were $16 (0.6%) lower. Domestic Filshie device sales, representing 15% of total domestic sales, were $444 (27.9%) lower in 2Q 2022 compared to 2Q 2021.
OUS sales in 2Q 2022 were $5,599 compared to $4,581 in 2Q 2021. The increase in USD-denominated OUS sales is understated in constant currency terms. The stronger USD subtracted $456 from 2Q 2022 OUS sales invoiced in GBP, EUR, AUD and CAD currencies. FX rates for income statement purposes are transaction-weighted averages. The average FX rates from the applicable foreign currency to USD during 2Q 2022 and 2Q 2021 for revenue purposes follow:
| 2Q 2022 | 2Q 2021 | Change |
GBP | 1.2525 | 1.3986 | (10.4%) |
EUR | 1.0571 | 1.2043 | (12.2%) |
AUD | 0.7178 | 0.7696 | (6.7%) |
CAD | 0.7847 | 0.8119 | (3.4%) |
The weighted average unfavorable impact on 2Q 2022 foreign currency OUS sales was 10.6%. In constant currency terms, foreign currency sales in 2Q 2022 were 32.2% higher than in 2Q 2021. The portion of OUS sales invoiced in foreign currencies in USD terms were 29% of total consolidated 2Q 2022 sales compared to 27% in 2Q 2021.
OUS sales invoiced in foreign currencies are due to direct end-user sales in Ireland, the UK, France, Canada, Australia and New Zealand, and to shipments to OUS distributors of products manufactured by UTMD subsidiaries in Ireland and the UK. Export sales from the U.S. to OUS distributors are invoiced in USD. Direct to end-user OUS 2Q 2022 sales in USD terms (including the negative impact of FX rate differences) were 11% lower in Ireland with the EUR FX rate down 12%, 1% lower in Canada with the CAD FX rate down 3%, about the same in the UK with the GBP FX rate down 10%, 23% lower in Australia/New Zealand with the AUD FX rate down 7%, and 15% higher in France with the EUR FX rate down 12%. Sales to OUS distributors were 41% higher in 2Q 2022 than in 2Q 2021.
1H 2022 Sales
Total consolidated 1H 2022 UTMD WW sales were $2,184 (+9.3%) higher than in 9M 2016. Comparing 3Q 2017 to 3Q 2016, total1H 2021. Constant currency sales were $2,792 (+11.8%) higher. U.S. domestic sales were about the same and USD sales outside the U.S. (OUS sales) were 10% higher. Comparing 9M 2017 to 9M 2016, total U.S. domestic sales were 3%6.8% higher and OUS sales were 2% higher.
Domestic sales were 49% of total consolidatedU.S. sales in 3Q 2017 and 51% in 3Q 2016, and 49% in both 9M 2017 and 9M 2016. Sales of Femcare's Filshie Clip System to CooperSurgical Inc. (CSI) for distribution in the U.S.1H 2022 were $264 higher in 3Q 2017$15,813 compared to 3Q 2016, and $594 higher$14,805 in 9M 2017 compared to 9M 2016. CSI purchases included, for the first time, $159 in 3Q 2017 and $244 in 9M 2017 of Filshie Sterishot kits which incorporate single use applicators approved by the FDA in December 2016. Femcare's1H 2021. Direct non-Filshie device sales, to CSI were 13%representing 51% of total domestic sales, were $859 (+12.0%) higher in 3Q 20171H 2022 than in 1H 2021, led by an increase in domestic neonatal device sales. OEM sales, representing 34% of total domestic sales, were $767 (+16.7%) higher. Domestic Filshie device sales, representing 15% of total domestic sales, were $618 (20.1%) lower in 1H 2022 compared to 8%1H 2021.
OUS sales in 3Q 2016, and 20% in 9M 20171H 2022 were $9,938 compared to 16%$8,762 in 9M 2016. Domestic OEM1H 2021. The increase in USD-denominated OUS sales were $32 higheris understated in 3Q 2017 compared to 3Q 2016,constant currency terms. The stronger USD subtracted $608 from 1H 2022 OUS sales invoiced in GBP, EUR, AUD and $95 higher in 9M 2017 compared to 9M 2016. Direct sales to U.S. user facilities were $287 lower in 3Q 2017 compared to 3Q 2016, and $246 lower in 9M 2017 compared to 9M 2016. All of the lower domestic direct sales were due to a weaker third quarter order pattern from U.S. hospitals in all product categories, partly due to one less shipping day, partlyCAD currencies. The transaction-weighted average FX rates from the effects of hurricanes in the U.S., partly resulting from an end of 3Q 2017 delivery glitch by UTMD's sterilizer,applicable foreign currency to USD during 1H 2022 and partly related to a larger volume of late orders that didn't ship until the beginning of October (resulting in a larger than normal 4Q 2017 beginning backlog).
| 1H 2022 | 1H 2021 | Change |
GBP | 1.2886 | 1.3908 | (7.3%) |
EUR | 1.0852 | 1.2037 | (9.8%) |
AUD | 0.7206 | 0.7711 | (6.6%) |
CAD | 0.7866 | 0.8009 | (1.8%) |
The weighted-average FX rate negative impact on 1H 2022 foreign currency OUS sales consolidatedwas 8.3%. In constant currency terms, foreign currency sales in USD in 3Q 20171H 2022 were 10% ($462)20.4% higher than in 3Q 2016, and 2% ($325) higher in 9M 2017 than in 9M 2016. In 9M 2017, UTMD lost $235 in1H 2021. The portion of OUS sales due to a weaker GBP. In other words, constant dollar OUS sales were 4% ($560) higherinvoiced in 9M 2017 compared to 9M 2016. Trade sales are sales to third parties, excluding sales from one UTMD entity to another (intercompany sales). UK subsidiary USD-denominated OUS trade sales, including direct sales to France clinical facilities, were 25% of total OUS salesforeign currencies in 3Q 2017 compared to 24% in 3Q 2016, and 24% in both 9M 2017 and 9M 2016. Australia subsidiary USD sales were 11% of total OUS sales in both 3Q 2017 and 9M 2017 compared to 12% in 3Q 2016 and 11% in 9M 2016. Ireland subsidiary USD trade salesterms were 26% of total consolidated 1H 2022 sales compared to 27% in 1H 2021. Direct to end-user OUS 1H 2022 sales in 3Q 2017 compared to 37%actual USD terms were 5% higher in 3Q 2016, and 25%Ireland with a 10% lower EUR, 8% lower in 9M 2017 compared to 36%Canada with a 2% lower CAD, 3% lower in 9M 2016. Canada subsidiary USD sales were 13% of total OUS sales in 3Q 2017 and 14% in 9M 2017 compared to 0% in 2016.
The following table provides USDUSD-denominated sales amounts divided into general product categories for total salesrevenues and the subset of OUS sales:
Global revenues by product category:
| 2Q 2022 | 2Q 2021 | 1H 2022 | 1H 2021 |
Obstetrics | $ 1,206 | $ 1,159 | $ 2,255 | $ 2,176 |
Gynecology/ Electrosurgery/ Urology | 5,423 | 5,674 | 10,525 | 10,802 |
Neonatal | 1,913 | 1,642 | 3,786 | 3,229 |
Blood Pressure Monitoring and Accessories* | 4,886 | 4,129 | 9,186 | 7,361 |
Total: | $ 13,428 | $ 12,604 | $ 25,752 | $ 23,568 |
| 3Q 2017 | 3Q 2016 | 9M 2017 | 9M 2016 | |||||||||||||
| Obstetrics | $ | 1,218 | $ | 1,229 | $ | 3,372 | $ | 3,428 | ||||||||
| Gynecology/ Electrosurgery/ Urology | 5,529 | 4,978 | 17,473 | 16,170 | ||||||||||||
| Neonatal | 1,510 | 1,402 | 4,574 | 4,575 | ||||||||||||
| Blood Pressure Monitoring and Accessories* | 1,868 | 2,046 | 5,794 | 6,273 | ||||||||||||
| Total: | $ | 10,125 | $ | 9,655 | $ | 31,213 | $ | 30,446 | ||||||||
OUS revenues by product category:
| 3Q 2017 | 3Q 2016 | 9M 2017 | 9M 2016 | |||||||||||||
| Obstetrics | $ | 172 | $ | 185 | $ | 533 | $ | 499 | ||||||||
| Gynecology/ Electrosurgery/ Urology | 3,691 | 3,197 | 10,966 | 10,024 | ||||||||||||
| Neonatal | 543 | 323 | 1,540 | 1,512 | ||||||||||||
| Blood Pressure Monitoring and Accessories* | 805 | 1,044 | 2,746 | 3,426 | ||||||||||||
| Total: | $ | 5,211 | $ | 4,749 | $ | 15,785 | $ | 15,461 | ||||||||
| 2Q 2022 | 2Q 2021 | 1H 2022 | 1H 2021 |
Obstetrics | $ 200 | $ 213 | $ 326 | $ 326 |
Gynecology/ Electrosurgery/ Urology | 3,029 | 2,801 | 5,550 | 5,316 |
Neonatal | 399 | 339 | 690 | 753 |
Blood Pressure Monitoring and Accessories* | 1,971 | 1,228 | 3,373 | 2,368 |
Total: | $ 5,599 | $ 4,581 | $ 9,939 | $ 8,763 |
*includes assemblies and molded components sold to OEM customers.
UTMD continues to be assembly labor limited in the U.S., in addition to continuing supply chain disruption worldwide for timely providing raw materials needed in manufacturing operations. Also, a continued strengthening of the USD would create a drag on improved 2H 2022 OUS foreign currency sales. Looking forward, without any additional price increases for UTMD devices (which is unlikely based on continuing cost increases), if UTMD is able to duplicate its 1H 2022 revenues in the 2H, sales in 4Q 2017for the 2022 year would be up about 5% compared to 4Q 2016 are expected to grow more than they did in 3Q 2017 compared to 3Q 2016, for several reasons: 1) 4Q 2016 was UTMD's lowest sales quarter in 2016; 2) a higher than usual 4Q 2017 beginning backlog; 3) the CSI committed 4Q 2017 order indicates 47% higher Filshie Clip System purchases than in 4Q 2016; 4) a continued weaker USD is expected to have a favorable impact on foreign currency consolidated sales; and 5) Bayer has announced that the Essure, the Filshie Clip System's chief competing surgical permanent contraception device, will no longer be sold OUS.
c)
Gross Profit (GP)GP results from subtracting the costcosts of production, manufacturing engineering, depreciation of equipment, maintenance and shipping products to customers (directrepairs, quality assurance including regulatory compliance, and purchasing including freight for receiving materials direct labor, manufacturing overhead and shipping costs), or the purchase pricefrom suppliers. As expected, despite dilution of distributed finished products manufactured by other companies, from revenues. At UTMD, manufacturingfixed overhead costs fully absorb indirectfrom higher sales, the 2Q and 1H significant inflationary increases in UTMD’s variable manufacturing costs including depreciation of manufacturing equipment and facilities, quality assurance, materials requirements planning and purchasing, manufacturing engineering, production supervision, shipping, royalties paid to other entities and health plan benefits for both direct and indirect manufacturing personnel. UTMD's consolidatedsqueezed UTMD’s GP in 3Q 2017Margin (GPM). UTMD’s 2Q 2022 GP was $721$365 (+4.7%) higher than in 3Q 2016, while sales were only $471 higher. UTMD's 9M 20172Q 2021. UTMD’s 1H 2022 GP was $1,675$951 (+6.5%) higher than in 9M 2016, while sales were only $768 higher.1H 2021. Although revenue was up more than GP in both 1Q and 1H periods, the resulting lower GPMs remained consistent with UTMD’s long term profitability goals. Incremental direct labor costs increased significantly as a result of competition for a limited number of people currently seeking work, and the Company’s efforts to help mitigate the negative impact of inflation on its long-term employees. UTMD also experienced double-digit percentage cost increases in raw materials costs. Incoming freight costs to receive raw materials doubled. The higher GPMsgrowing administrative burden of compliance with regulatory requirements, particularly OUS, continued to pressure UTMD’s GPM. Although managing the rapid rise in 2017 resulted essentially from direct sales in Canada and France at retail prices which replaced distributor sales at wholesale prices invariable manufacturing costs will apparently continue to be a significant challenge for the prior year.
Operating Income results from subtracting Operating Expenses (OE) from GP. After subtracting OE from higher 2Q and 1H 2022 GP, minus OE. Due to higher GP and lower OE, OIOperating Income in 3Q and 9M 20172Q 2022 was $4,679 and $14,438 respectively,$5,057 compared to $3,939 and $12,566$4,765 in 3Q and 9M 2016 respectively. UTMD's 3Q and 9M 2017 continued excellent OIM2Q 2021, an increase of 6.1%, representing a healthy Operating Income Margin (Operating Income as a percentage of sales) of 37.7%. Operating Income in 1H 2022 was 46.2% and 46.3% respectively,$9,579 compared to 40.8% and 41.3%$8,652 in 1H 2021, an increase of 10.7%, representing an Operating Income Margin of 37.2%. The increase in Operating Income was almost the same periodsas the increase in sales despite a lower GPM and higher litigation expenses (included in G&A OE) because of 2016.
OE are comprised of generalSales and administrativeMarketing (S&M) expenses, General and Administrative (G&A) expenses sales and marketing (S&M) expenses and product developmentProduct Development (R&D) expenses. Consolidated USD-denominatedThe following table summarizes OE in 2Q and 1H 2022 compared to the same periods in 2021 by OE category:
OE Category | 2Q 2022 | % of sales | 2Q 2021 | % of sales | 1H 2022 | % of sales | 1H 2021 | % of sales |
S&M: | $ 357 | 2.7 | $ 364 | 2.9 | $ 693 | 2.7 | $ 748 | 3.2 |
G&A: | 2,602 | 19.3 | 2,528 | 20.1 | 5,153 | 20.0 | 5,073 | 21.5 |
R&D: | 135 | 1.0 | 128 | 1.0 | 258 | 1.0 | 259 | 1.1 |
Total OE: | $ 3,094 | 23.0 | $ 3,020 | 24.0 | $ 6,104 | 23.7 | $ 6,080 | 25.8 |
A stronger USD helped decrease foreign currency OE when converted to USD by $100 in 2Q 2022 and $135 in 1H 2022. The following table summarizes “constant currency” OE in 2Q and 1H 2022 compared to the same periods in 2021 by OE category:
OE Category | 2Q 2022 const FX |
| 2Q 2021 |
| 1H 2022 const FX |
| 1H 2021 |
|
S&M: | $ 366 |
| $ 364 |
| $ 707 |
| $ 748 |
|
G&A: | 2,693 |
| 2,528 |
| 5,274 |
| 5,073 |
|
R&D: | 135 |
| 128 |
| 258 |
| 259 |
|
Total OE: | $ 3,194 |
| $ 3,020 |
| $ 6,239 |
| $ 6,080 |
|
OUS OE when converted to USD were decreased 10% in 2Q 2022 and 7% in 1H 22 by the FX rate change. Constant currency 2Q 2022 OE were $1,8176% higher than in 3Q 2017 (17.9% of consolidated revenues) compared to $1,8362Q 2021, and 3% higher in 3Q 2016 (19.0% of consolidated revenues). Holding1H 2022 than in 1H 2021. In other words, the FX rate change which decreased foreign OE relatively constant while increasing sales added leverage toin USD terms almost offset the 12.5% increasehigher G&A expenses in GPthe U.S.
The change in achieving UTMD's 18.8% increase in 3Q 2017 OI. Consolidated OE were $5,487 in 9M 2017 (17.6% of revenues) compared to $5,684 in 9M 2016 (18.7% of revenues), helping to leverage a 9.2% increase in GP into a 14.9% increase in OI for 9M 2017.
A segmentation of USD-denominated G&A expenses by subsidiary location follows. Note that it will provide, at no charge in reasonable quantities, copiesover 60% of instruction materials developed for the use of its products. UTMD provides customer support from offices in the U.S., Canada, the UK, Ireland and Australia by telephone, and employed representatives on a geographically dispersed basis, to answer user questions and help troubleshoot any user issues. Occasionally, on a case-by-case basis, UTMD may utilize the services of an independent practitioner to provide educational assistance to clinicians. All inservice and training expenses are routinely expensed as they occur. All of these services are allocated from S&M overhead costs included in OE. Historically, marginal consulting costs have been immaterial to financial results.
G&A Expense Category | 2Q 2022 | % of sales | 2Q 2021 | % of sales | 1H 2022 | % of sales | 1H 2021 | % of sales |
IIA Amort– UK: | $ 498 | 3.7 | $ 556 | 4.4 | $ 1,030 | 4.0 | $ 1,106 | 4.7 |
IIA Amort– CSI: | 1,105 | 8.2 | 1,105 | 8.8 | 2,210 | 8.6 | 2,210 | 9.4 |
Other– UK: | 142 |
| 155 |
| 296 |
| 312 |
|
U.S. Litigation: | 165 |
| - |
| 226 |
| - |
|
Other– US: | 528 |
| 552 |
| 1,082 |
| 1,113 |
|
IRE: | 85 |
| 77 |
| 152 |
| 161 |
|
AUS: | 42 |
| 42 |
| 85 |
| 88 |
|
CAN: | 37 |
| 41 |
| 72 |
| 83 |
|
Total G&A: | $ 2,602 | 19.3 | $ 2,528 | 20.1 | $ 5,153 | 20.0 | $ 5,073 | 21.5 |
OUS G&A expenses were $804 in 3Q 2017 and $1,526 (4.9% of consolidated revenues) in 9M 2017,2Q 2022 compared to $524 (5.4% of consolidated revenues)$871 in 3Q 2016 and $1,671 (5.5% of consolidated revenues)2Q 2021. OUS G&A expenses were $1,634 in 9M 2016. The period to period differences in USD-denominated IIA amortization expense were almost all FX-related since the IIA amortization expense was £1,196 in 9M 20171H 2022 compared to £1,201$1,750 in 9M 2016. G&A expenses excluding the noncash IIA amortization expense were $828 (8.2% of revenues) in 3Q 2017 compared to $770 (8.0% of revenues) in 3Q 2016.1H 2021. The increase in 3Q 2017 was due to $44 in G&A expense for the new Canada subsidiary and a stronger EUR which increased Ireland G&A expenses in USD terms. G&A expenses excluding the noncash IIA amortization expense were $2,467 (7.9% of revenues) in 9M 2017 compared to $2,379 (7.8% of revenues) in 9M 2016. Again, the increase was due totable below identifies “constant currency” OUS G&A expenses for the new Canada subsidiary, which added $142 to consolidated G&A expenses in 9M 2017.
Table of SEC rules resulting fromContents
G&A Expense Category | 2Q 2022 const FX |
| 2Q 2021 |
| 1H 2022 const FX |
| 1H 2021 |
|
IIA Amort– UK: | $ 556 |
| $ 556 |
| $ 1,106 |
| $ 1,106 |
|
Other– UK: | 159 |
| 155 |
| 318 |
| 312 |
|
IRE: | 97 |
| 77 |
| 168 |
| 161 |
|
AUS: | 44 |
| 42 |
| 91 |
| 88 |
|
CAN: | 38 |
| 41 |
| 73 |
| 83 |
|
Total G&A: | $ 894 |
| $ 871 |
| $ 1,756 |
| $ 1,750 |
|
Period to period product development (R&D) expenses varied slightly depending on specific project costs. Since almost all R&D is being carried out in the Sarbanes-Oxley Act of 2002, as well as estimated stock-based compensation cost, a noncash expense. Option compensation expense included in G&A expensesU.S., there was $30 in 3Q 2017 compared to $20 in 3Q 2016, and $99 in 9M 2017 compared to $62 in 9M 2016.
| 3Q 2017 | 3Q 2016 | 9M 2017 | 9M 2016 | |||||||||||||
| S&M Expense | $ | 364 | $ | 408 | $ | 1,154 | $ | 1,270 | ||||||||
| R&D Expense | 103 | 135 | 341 | 364 | ||||||||||||
| G&A Expense | 1,350 | 1,293 | 3,993 | 4,050 | ||||||||||||
| Total Operating Expenses: | $ | 1,817 | $ | 1,836 | $ | 5,487 | $ | 5,684 | ||||||||
e)
Non-operating expense/ Non-operating incomeNon-operating expense (NOE)/ Non-operating income (NOI)
The main difference in net non-operating income during both 2Q and 1H 2022 was due to greater rental income received from renting underutilized warehouse space in Ireland to a third party, and to more interest received on remeasured foreign currencycash bank balances. Because UTMD owns its own facilities with space in excess of current needs, this sort of opportunistic rental income occurs from time to time. UTMD Ireland realized $17 more in 2Q 2022 rental income than in 2Q 2021, and $69 more in 1H 2022 rental income than in 1H 2021. With higher cash balances and higher interest rates in 3Q 2017 was $42022 compared to 2021, UTMD received $90 more in 2Q 2022 interest income and $34 more in 1H interest income. In 2Q 2022, a gainloss of $18 in 3Q 2016. In 9M 2017, a gain$2 on remeasured foreign currency balances was $5recognized compared to a gain of $129$5 in 9M 2016.2Q 2021. In both 1H 2022 and 1H 2021, a loss of $5 on remeasured foreign currency balances was recognized. Royalties received were $23$5 in 3Q 20172Q 2022 and $10 in 1H 2022 compared to $22$0 in 3Q 2016,both 2Q and $651H 2021. Bank fees were $25 in 9M 20172Q 2022 compared to $67$18 in 9M 2016.
f)
Income Before Income Taxes (EBT)Consolidated EBT results from subtracting net NOEnon-operating expense or adding NOInet non-operating income from or to, as applicable, consolidated OI.Operating Income. Consolidated 3Q 20172Q 2022 EBT was $4,696 (46.4%$5,199 (38.7% of sales) compared to $3,980 (41.2%$4,825 (38.3% of sales) in 3Q 2016.2Q 2021. Consolidated 9M 20171H 2022 EBT was $14,503 (46.5%$9,729 (37.8% of sales) compared to $12,772 (42.0%$8,723 (37.0% of sales) in 9M 2016.
The EBT of Utah Medical Products, Inc. (U.S. only)in the U.S. was $2,331$5,981 in 3Q 20171H 2022 compared to $2,347$5,466 in 3Q 2016, and $6,815 in 9M 2017 compared to $6,750 in 9M 2016.1H 2021. The EBT of Utah Medical Products, Ltd (Ireland) was EUR 7173,825 in 3Q 20171H 2022 compared to EUR 8553,122 in 3Q 2016, and EUR 2,229 in 9M 2017 compared to EUR 2,455 in 9M 2016 . The lower 2017 EBT in Ireland was due to Ireland selling its manufactured Filshie Sterishot kits on a discounted intercompany basis to UTMD Canada and UTMD UK for distribution directly into France, instead of selling on a wholesale trade basis to external distributors distributing Filshie devices in Canada and France. The trade-off to lower Ireland EBT was higher UK subsidiary trade revenues and profits, and new revenues and profits by UTMD Canada.1H 2021. The EBT of Femcare Group Ltd (Femcare-Nikomed,(Femcare Ltd., UK and Femcare Australia)Australia Pty Ltd) was GBP 835(GBP 232) in 3Q 20171H 2022 compared to GBP 566(GBP 295) in 3Q 2016, and GBP 3,141 in 9M 2017 compared to GBP 2,374 in 9M 2016.1H 2021. The 3Q 2017 and 9M 2017 EBT of Utah Medical Products Canada, Inc. (dba Femcare Canada) was CAD 435 and CAD 1,497, respectively,332 in 1H 2022 compared to zeroCAD 303 in 2016.
EBITDA is a non-US GAAP metric that measures profitability performance without factoring in effects of financing, accounting decisions regarding non-cash expenses, capital expenditures or tax environments. Management believes that this operating performance metric provides meaningful supplemental information to both management and investors and confirms UTMD’s ongoing excellent financial operating performance, as well as its ability to sustain performance during a challenging economic time. Excluding the noncash effects of depreciation, amortization of intangible assets and stock option expense, 3Q 20172Q 2022 consolidated EBT excluding the remeasured bank balance currency gain or loss (“adjusted consolidated EBITDA”) was $7,005 (+4.6%) compared to $6,695 in 2Q 2021. Adjusted consolidated EBITDA at $13,376 in 1H 2022 was 7.3% higher compared to $12,471 in 1H 2021. Adjusted consolidated TTM EBITDA was $27,435 as of June 30, 2022. TTM EBITDA as of June 30, 2021, a year earlier, was $3,411 lower.
UTMD’s non-US GAAP adjusted consolidated EBITDA as a percentage of sales (EBITDA margin) was 52.2% in 2Q 2022 compared to 53.1% in 2Q 2021. UTMD’s EBITDA margin was 51.9% in 1H 2022 compared to 52.9% in 1H 2021. The lower 2022 EBITDA margins reflect the 2022 GPM squeeze. Nevertheless, management believes that current EBITDA margins demonstrate continued outstanding operating performance.
UTMD’s non-US GAAP adjusted consolidated EBITDA is the sum of the elements in the following table, each element of which is a US GAAP number:
| 2Q 2022 | 2Q 2021 | 1H 2022 | 1H 2021 |
EBT | $ 5,199 | $ 4,825 | $ 9,729 | $ 8,723 |
Depreciation Expense | 153 | 162 | 302 | 326 |
Femcare IIA Amortization Expense | 498 | 556 | 1,030 | 1,106 |
CSI IIA Amortization Expense | 1,105 | 1,105 | 2,211 | 2,211 |
Other Non-Cash Amortization Expense | 8 | 10 | 16 | 18 |
Stock Option Compensation Expense | 40 | 41 | 83 | 82 |
Interest Expense | - | - | - | - |
Remeasured Foreign Currency Balances | 2 | (4) | 5 | 5 |
UTMD non-US GAAP EBITDA: | $ 7,005 | $ 6,695 | $ 13,376 | $ 12,471 |
Note
All UTMD income statement measures from GP through EBT, including non-US GAAP adjusted consolidated EBITDA, for both 2022 and interest expense (adjusted consolidated EBITDA)2021 time periods were $5,417 (53.5%unaffected by the 2Q 2021 enacted change in the UK corporate income tax rate.
g) Net Income
Net Income in 2Q 2022 of $4,103 (30.6% of sales) was 19.7% higher than the US GAAP Net Income of $3,426 (27.2% of sales) in 2Q 2021. Excluding the “one-time” income tax provision increase recognized in 2Q 2021 as a result of a future UK tax rate increase and resulting DTL adjustment, diluted Net Income in 2Q 2022 was $4,103 (30.6% of sales) compared to $4,670 (48.4%non-US GAAP Net Income of $3,817 (30.3% of sales) in 3Q 2016. Adjusted consolidated EBITDA2Q 2021, a 7.7% increase, which is consistent with the increase in 9M 2017 were $16,653 (53.4%EBT per US GAAP.
As a reminder, in 2Q 2021, because the UK reset its corporate tax rate from 19% to 25% beginning with 2Q 2023, it caused UTMD to have to book an additional $390 in its 2Q 2021 income tax provision that represents the additional tax which would be paid in the UK over the remaining IIA amortization life of the 2011 Femcare acquisition. Excluding the $390 DTL increase in 2Q 2021 which reduced Net Income by that same amount, 2Q 2021 non-US GAAP Net Income was $3,817 (30.3% of sales) compared to $14,871 (48.8% of sales) in 9M 2016. Based on this 9M performance, management now projects approximately $21.5 million in adjusted consolidated EBITDA for the 2017 year. TTM adjusted consolidated EBITDA were $21,000.
The average consolidated income tax provision. provisions (as a % of the same period EBT) per US GAAP in 2Q 2022 and 2Q 2021 were 21.1% and 29.0% respectively, and were 21.5% and 26.1% in 1H 2022 and 1H 2021 respectively. As the tax rates for 2Q and 1H 2021 are not directly related to EBT generated in the same periods, UTMD provides the following tax rates excluding the 2Q 2021 $390 tax provision adjustment: The resulting non-GAAP income tax provision rates were 21.1% and 20.9% for 2Q 2022 and 2Q 2021 respectively, and were 21.5% and 21.6% for 1H 2022 and 1H 2021 respectively.
The consolidated income tax provision rate varies as the mix in 3Q 2017 was 22.9% compared to 26.3% for 3Q 2016. NI in 9M 2017 of $11,027 (35.3% of sales) was $1,616 (+17.2%) higher than the NI of $9,411 (30.9% of sales) in 9M 2016. The consolidatedtaxable income among U.S. and foreign subsidiaries with differing income tax provision rates were 24.0% in 9M 2017 and 26.3% in 9M 2016. On April 1, 2017, thediffers from period to period. The basic corporate income tax raterates in each of the sovereignties were the same as in the UK was lowered from 20% to 19%. For foreign subsidiaries, the tax provision booked in consolidated results is based on taxable income in the applicable sovereignty, not based on U.S. GAAP EBT. As UTMD held about $19 million in cash in USD currency in Ireland and UK subsidiary bank accounts as of September 30, 2017, and the USD weakened relative to the applicable native currency, the resulting translation loss for each subsidiary created a tax credit for those subsidiaries. In summary, although there was not a corresponding translation loss for consolidated UTMD EBT results, which are obviously expressed in USD, there was an income tax provision benefit.
h)
Earnings Per Share (EPS)EPS are consolidated NINet Income divided by the number of shares of stock outstanding (diluted to take into consideration stock option awards which are "in“in the money,"” i.e., have exercise prices below the applicable period'speriod’s weighted average market value). Diluted EPS in 3Q 20172Q 2022 were $0.969$1.124 compared to $0.777 in 3Q 2016. In 9M 2017,US GAAP diluted EPS of $0.937 in 2Q 2021, a 19.9% increase. Excluding the “one-time” income tax provision increase recognized in 2Q 2021 as a result of a future UK tax rate increase and a DTL adjustment, diluted EPS in 2Q 2022 were $2.953$1.124 compared to $2.493non-US GAAP diluted EPS of $1.044 in 9M 2016. With some help from2Q 2021, 7.7% higher, consistent with the increase in EBT.
Diluted EPS in 1H 2022 were $2.088 compared to US GAAP diluted EPS of $1.765 in 1H 2021, an 18.3% increase. Excluding the “one-time” income tax provision increase recognized in 2Q 2021 as a result of a future UK tax rate increase and a DTL adjustment, diluted EPS in 1H 2022 were $2.088 compared to non-US GAAP diluted EPS of $1.871 in 1H 2021, an 11.6% increase, also consistent with the increase in EBT per US GAAP.
Diluted shares were 3,650,242 in 2Q 2022 compared to 3,655,319 in 2Q 2021. Diluted shares were 3,657,864 in 1H 2022 compared to 3,655,514 in 1H 2021. The lower diluted shares outstanding, 3Q 2017 EPS increased 24.7% (19.2 cents) compared to 3Q 2016,in 2Q 2022 were the result of shares repurchased during 2Q 2022 offset by employee options exercised, and 9M 2017 EPS increased 18.5% (46.0 cents) compared to 9M 2016.
The number of shares used for calculating earnings per shareEPS was higher than ending shares because of a time-weighted calculation of average outstanding shares plus dilution from unexercised employee and director options. Outstanding shares at the end of 2Q 2022 were 3,624,932 compared to 3,654,737 at the end of calendar year 2021. The difference was due to 300 shares added from employee option exercises during 1H 2022, offset by 30,105 shares repurchased in the open market and retired during 2Q 2022. For comparison, outstanding shares were 3,645,798 at the end of 2Q 2021. The total number of outstanding unexercised employee and outside director options at SeptemberJune 30, 20172022 was 57,019 shares50,408 at an average exercise price of $45.35/$69.07, including shares awarded but not yet vested. This compares to 63,874 unexercised option shares at the end of 2Q 2021 at an average exercise price of $68.38/ share, including shares awarded but not vested. This compares to 49,398 unexercised option shares outstanding at September 30, 2016, at an average exercise price of $39.55/ share. No option shares have beenoptions were awarded in 2021 and to date in 2017.
UTMD did not repurchasepaid $1,060 ($0.290/share) in dividends to stockholders in 2Q 2022 compared to $1,039 ($0.285/ share) paid in 2Q 2021. The dividends paid to stockholders during 2Q 2022 were 26% of NI. UTMD paid $1,060 ($0.290/share) in dividends to stockholders in 1H 2022 compared to $2,077 ($0.285/ share) paid in 1H 2021. The 1H 2022 dividend total excludes a dividend normally paid in January. A special dividend of $7,309 ($2.00/share) was paid in December 2021 in lieu of January 2022.
In 2Q 2022, UTMD repurchased 30,105 of its shares for $2,495, an average cost of $82.88/ share. No UTMD shares were repurchased in the open market.2021. The Company retains the strong desire and financial ability for repurchasing its shares when they seem undervalued.
ROE is the portion of NInet income retained by UTMD to internally finance its growth, divided by the average accumulated stockholders'stockholders’ equity for the applicable time period. Annualized ROE (using non-GAAP net income in 9M 20172021 and before stockholder dividends) in 1H 2022 was 14% compared to 12%13% in 9M 2016. Annualized ROE (before stockholder dividends) in 9M 2017 was 20% compared to 18% in 9M 2016.1H 2021. The higher ROE in 9M 20171H 2022 was due to the increase in NI.higher 1H 2022 net income, despite being diluted by higher average Stockholder’s Equity. Targeting a high ROE of 20% (before dividends) remains a key financial objective for UTMD management. ROE can be increased by increasing NI,net income, or by reducing stockholders'stockholders’ equity by paying cash dividends to stockholders or by repurchasing shares.
Liquidity and Capital Resources
j)
Cash flowsNet cash provided by operating activities, including adjustments for depreciation and amortization and other non-cash expenses along with changes in working capital, totaled $12,323$9,878 in 9M 20171H 2022 compared to $11,143$10,225 in 9M 2016. The most significant differences in the two periods were the $1,6161H 2021. Although UTMD achieved a $1,187 higher increase in net income,US GAAP Net Income in 1H 2022 and a $831 use of$591 higher contribution to cash fromprovided by a larger increase$102 decrease in 9M 2017 trade accounts receivable compared to 9M 2016, and a $575 benefit$489 increase in 1H 2021, a $347 lower net increase in operating cash in 1H 2022 than in 1H 2021 was due to cash from an largeroffsetting working capital change differences including 1) a $929 increase in inventories compared to a $75 decrease in 1H 2021, 2) a $357 decrease in accrued expenses in 9M 2017 compared to 9M 2016.
Capital expenditures for property and equipment (PP&E) were $174$450 in 9M 20171H 2022 compared to $237$222 in 9M 2016. Capital1H 2021. The amount spent in 1H 2021 was for typical expenditures of approximately $1.5 millionrequired to keep facilities and equipment, particularly in molding operations, in good working order. The larger capital expenditures in 1H 2022 were primarily due to purchasing new equipment and tooling needed to expand production capacity for the fit-out of the UK facility will occur in 4Q 2017.UTMD’s largest OEM customer. Depreciation of PP&E was $489$302 in 9M 20171H 2022 compared to $452$325 in 9M 2016.
UTMD made cash dividend payments of $1,969$1,060 in 9M 20171H 2022 compared to $1,954$2,077 in 9M 2016.1H 2021. The Company did not use cashdifference was due to repurchase anyan earlier payment of its own shares during either 9M 2017 or 9M 2016.
In 9M 2017,1H 2022, UTMD received $224$23 and issued 6,198300 shares of its stock upon the exercise of employee and director stock options, net of 211 shares retired upon employees trading those shares in payment of the stock option exercise price.options. Option exercises in 9M 20171H 2022 were at an average price of $37.39$76.25 per share. In comparison, in 9M 2016 the Company1H 2021, UTMD received $306$92 and issued 10,0622,763 shares of its stock onupon the exercise of employee and director stock options, net of 861 shares retired upon optionees trading those shares in payment of the stock option exercise price.options. Option exercises in 9M 20161H 2021 were at an average price of $33.12$33.17 per share.
Management believes that current cash balances, income from operations and effective management of working capital will provide the liquidity needed to finance internal growth plans. The Company may utilize cash not needed to support normal operations in one or a combination of the following: 1) in general, to continue to invest at an opportune time in ways that will enhance future profitability, for example, to fit-out a UK facility and property purchased in late 2016 specific to UTMD's needs;profitability; 2) to make additional investments in new technology and/or processes; and/or 3) to acquire a product line or company that will augment revenue and EPS growth and better utilize UTMD'sUTMD’s existing infrastructure. If there are no better strategic uses for UTMD'sUTMD’s cash, the Company will continue to return cash to stockholders in the form of dividends and share repurchases when the stock appears undervalued.
k)
Assets and LiabilitiesAt June 30, 20172022 compared to the end of 2021, UTMD’s cash and investments increased $5,249 to $66,224 primarily as a result of 1H 2022 Net Income of $7,638 less $3,555 use of cash for dividends to stockholders and UTMD share repurchases. At June 30, 2022, net Intangible Assets decreased to 22.9% of total consolidated assets from 27.2% on December 31, 2021 due in part to a stronger USD which lowers the USD value of Femcare’s GBP IIA. UTMD’s still strong 17.8 current ratio at June 30, 2022 was lower than the 19.5 current ratio at December 31, 2021 as a result of $636 higher accrued liabilities. The average age of trade receivables was 33 days from date of invoice at June 30, 2022 compared to 36 days at December 31, 2021 based on the most recent calendar quarter of sales. Average inventory turns declined slightly to 2.9 in 2Q 2022 compared to 3.0 for the last quarter of 2021 due to increasing safety stocks of raw material.
June 30, 2022 total consolidated assets were $90,675,$116,149, an increase of $14,091$513 from December 31, 2016. The increase was due mainly to2021. Current assets were $5,795 higher than at December 31, 2021 primarily because of a $11,156$5,249 increase in cash and investments. Other significant changes in assets included a $1,519$741 increase in consolidated net trade receivables, a $500inventories. The modest increase in consolidated inventories, andtotal assets despite the large increase in current assets was primarily due to a $496 increase$4,806 decline in net intangible assets. UTMD's Ireland subsidiary EUR-denominated assets from 1H 2022 IIA amortization and liabilities were translated into a 10% lower GBP/USD at an FX rate 11.9% higher (stronger EUR) thanon the FXFemcare UK intangible asset balance, in addition to a $462 USD-value decline in UK and Ireland Property and Equipment from the difference in the foreign currency exchange (FX) rate at the endDecember 31, 2021 and June 30, 2022.
For clarity, the FX rate at the end of 2016. UTMD's Australia subsidiary AUD-denominated assets were translated into USD at an FX rate 8.4% higher (stronger AUD) than the FX rate at the end of 2016. The net book value of consolidated property, plant and equipment increased $441decreased $476 at SeptemberJune 30, 20172022 from the end of 20162021 due to the net effect of period-ending changed FX rates, $174$450 in new asset purchases minus $302 in depreciation, including right of use assets totaling $420 (which were $449 at December 31, 2021).
June 30, 2022 net intangible assets (goodwill plus other intangible assets) declined $4,806 from the end of 2021 as a result of $3,240 in amortization and $489 in depreciation.
Working capital (current assets minus current liabilities) was $42,838$74,514 at SeptemberJune 30, 2017,2022 compared to $31,845$69,412 at December 31, 2016. A current asset increase2021. Cash balances were $66,224 of $13,153 was led by the $11,156June 30, 2022 working capital. Current assets at June 30, 2022 compared to December 31, 2021 were $5,795 higher primarily as the result of a $5,249 increase in cash and investments.investments and a $742 increase in inventories. Current liabilities increased $2,161, includingwere $693 higher at June 30, 2022 compared to December 31, 2021 as the result of a $1,941$636 increase in accrued liabilities.liabilities and $57 higher accounts payable. The higher accrued liabilities increase was mainly due to the $986 3Q 2017 quarterlyresulted from no stockholder dividend, payment to stockholders accrued but not paid until October 3, whereas the $984 4Q 2016 dividendwhich was paid beforeearlier than normal in December 2021, accrued at the end of December 2016.2021, whereas at the end of 2Q 2022 a $1,060 dividend, which was paid in July, was included in June 30, 2022 accrued liabilities. The increase in accrued liabilities was less than the $1,060 accrued dividend primarily because the accrued profit-sharing bonus at the end of 2021, based on 2021 full year results, was $349 higher than the profit-sharing bonus accrued at June 30, 2022 based on 6 months’ results. UTMD management believes that its working capital remains more than sufficient to meet normal operating needs, new capital expenditures and projected cash dividend payments to stockholders.
June 30, 2017 intangible assets (goodwill plus other intangible assets) increased $496 from the end of 2016. The increase was due to the higher FX rate for GBP Femcare intangibles as of September 30, 2017, compared to year-end 2016, offset somewhat by the $1,526 9M 2017 amortization of Femcare IIA. At September 30, 2017, net intangible assets including goodwill declined to 36% of2022 total consolidated assets compared to 41%liabilities were $8,679, an increase of $180 from December 31, 2021. Current liabilities were $693 higher than at both year-end 2016 and September 30, 2016.
The deferred tax liability balance for Femcare IIA ($9,084 on the date of the acquisition), was $3,176$1,707 at SeptemberJune 30, 2017,2022 compared to $3,209$2,105 at December 31, 2016,2021 and $3,612$2,355 at SeptemberJune 30, 2016.2021. Reduction of the deferred tax liability occurs as the book/tax difference of IIA amortization is eliminated over the remaining useful life of the Femcare IIA. UTMD'sIIA, i.e. as Femcare pays its taxes in the UK without the benefit of a deduction for IIA amortization expense.
UTMD’s total debt ratio (total liabilities/total assets) as of SeptemberJune 30, 20172022 and December 31, 20162021 was 10%7%, compared to June 30, 2021 at 8%. UTMD's total debt ratio as of September 30, 2016 was 12%.
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Management's OutlookAs outlined in its December 31, 20162021 SEC 10-K report, UTMD'sUTMD’s plan for 2017 is2022 was to
1) leverage distribution and manufacturing synergies by further integrating capabilities and resources in UTMD’s multinational operations;
2) expand manufacturing capacity at a time when resources are particularly scarce;
3) focus on effectively differentiating the benefits of the Filshie Clip System in the U.S.;
4) introduce additional products helpful to clinicians through internal product development;
5) continue to achieve excellent overall financial operating performance;
6) utilize positive cash generation to continue providing cash dividends to stockholders and make open market share repurchases if/when the UTMD share price seems undervalued; and
7) remain vigilant for affordable accretive acquisition opportunities which may be brought about by difficult burdens on small, innovative companies.
Despite continuing economic challenges created by government reaction to the COVID-19 pandemic, especially including inflation in costs and lack of availability of workers, the Company continues to effectively execute its 2022 plan as outlined above. Based on results of 9M 2017, management expects to exceed the financial objectives for the full year of 2017 as stated in the Form SEC 10-K at the beginning of the year.
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Accounting Policy ChangesNone.
Forward-Looking Information. This report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by management based on information currently available. When used in this document, the words "anticipate," "believe," "project," "estimate," "expect," "intend"“anticipate,” “believe,” “project,” “estimate,” “expect,” “intend” and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company respecting future events and are subject to certain risks, uncertainties and assumptions, including the risks and uncertainties stated throughout the document. Although the Company has attempted to identify important factors that could cause the actual results to differ materially, there may be other factors that cause the forward statement not to come true as anticipated, believed, projected, expected or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those described herein as anticipated, believed, projected, estimated, expected or intended. Financial estimates are subject to change and are not intended to be relied upon as predictions of future operating results, and the Company assumes no obligation to update or disclose revisions to those estimates.
UTMD has manufacturing and trading operations, including related assets, in the U.S. denominated in the U.S. Dollar (USD), in Ireland denominated in the Euro (EUR), in England denominated in the British Pound (GBP), in Australia denominated in the Australia Dollar (AUD), and starting in 2017, in Canada denominated in the Canadian Dollar (CAD). The currencies are subject to exchange rate fluctuations that are beyond the control of UTMD. The exchange rates were .8465, .9474.9555, .8790 and .8897.8438 EUR per USD as of SeptemberJune 30, 2017,2022, December 31, 20162021 and SeptemberJune 30, 2016,2021, respectively. Exchange rates were .7463, .8105.8224, .7388 and .7685.7243 GBP per USD as of SeptemberJune 30, 2017,2022, December 31, 20162021 and SeptemberJune 30, 2016,2021, respectively. Exchange rates were 1.2756, 1.38291.4484, 1.3759 and 1.30441.3342 AUD per USD on SeptemberJune 30, 2017,2022, December 31, 2016,2021 and SeptemberJune 30, 2016,2021, respectively. Exchange rates were 1.25131.2872, 1.2656, and 1.2404 CAD per USD on SeptemberJune 30, 2017.2022, December 31, 2021 and June 30, 2021, respectively. UTMD manages its foreign currency risk without separate hedging transactions by either invoicing customers in the local currency where costs of production were incurred, by converting currencies as transactions occur andand/or by optimizing global account structures through liquidity management accounts.
The Company'sCompany’s management, under the supervision and with the participation of the Chief Executive Officer and the Principal Financial Officer, evaluated the effectiveness of the Company'sCompany’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of SeptemberJune 30, 2017.2022. Based on this evaluation, the Chief Executive Officer and Principal Financial Officer concluded that, as of SeptemberJune 30, 2017,2022, the Company'sCompany’s disclosure controls and procedures were effective.
There were no changes in the Company'sCompany’s internal controls over financial reporting that occurred during the ninesix months ended SeptemberJune 30, 2017,2022, that have materially affected, or are reasonably likely to materially affect, the Company'sCompany’s internal controls over financial reporting.
The Company may beis currently a party from time to time in litigation incidental to its business. Presently, there is no litigationbusiness related to the outcomesafety of the Filshie Clip System, which is expected to be material to financial results.
In addition to the other information set forth in this report, investors should carefully consider the factors discussed in Part I, "Item“Item 1A. Risk Factors"Factors” in UTMD'sUTMD’s Annual Report on Form 10-K for the year ended December 31, 2016,2021, which could materially affect its business, financial condition or future results. The risks described in the Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to UTMD or currently deemed to be immaterial also may materially adversely affect the Company'sCompany’s business, financial condition and/or operating results.
Legislative or executive order healthcare reforminterference in the United States as embodied in The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (the "Acts") added a substantial excise tax (MDET) in 2013-2015 that increased administrative costs and has led to decreased revenues in the U.S.:
Increasing regulatory burdens, including premarketing approval delays, may result in significant loss of revenue, unpredictable costs and loss of management focus on helpingdeveloping and marketing products that improve the Company proactively conformquality of healthcare:
Thousands of small focused medical device manufacturers including UTMD that do not have the overhead structure that the few large medical device companies can afford are increasingly burdened with requirementsbureaucratic and thrive:
Group Purchasing Organizations (GPOs) addsin the U.S. add non-productive costs, typically weakensweaken the Company'sCompany’s marketing and sales efforts and may result incause lower revenues:
GPOs, theoretically acting as bargaining agents for member hospitals, but actually collecting revenues from the companies that they are negotiating with, have made a concerted effort to turn medical devices that convey special patient safety advantages and better health outcomes, like UTMD's,UTMD’s, into undifferentiated commodities. GPOs have been granted an antitrust exemption by the U.S. Congress. Otherwise, their business model based on "kickbacks"“kickbacks” would be a violation of law. TheseDespite rhetoric otherwise, these bureaucratic entities do not recognize or understand the overall cost of care as it relates to safety and effectiveness of devices, and they create a substantial administrative burden that is primarily related todriven by collection of their administrative fees.
The Company'sCompany’s business strategy may not be successful in the future:
As the level of complexity and uncertainty in the medical device industry increases, evidenced, for example, by the unpredictable and overly cumbersome regulatory environment, the Company'sCompany’s views of the future and product/ market strategy may not yield financial results consistent with the past.
As the healthcare industry becomes increasingly bureaucratic it puts smaller companies like UTMD at a competitive disadvantage:
An aging population is placing greater burdens on healthcare systems, particularly hospitals. The length of time and number of administrative steps required in adopting new products for use in hospitals has grown substantially in recent years. Smaller companies like UTMD typically do not have the administrative resources to deal with broad new administrative requirements, resulting in either loss of revenue or increased costs. As UTMD introduces new products it believes are safer and more effective, it may find itself excluded from certain clinical users because of the existence of long term supply agreements for preexisting products, particularly from competitors which offer hospitals a broader range of products and services. Restrictions used by hospital administrators to limit clinician involvement in device purchasing decisions makes communicating UTMD'sUTMD’s clinical advantages much more difficult.
A product liability lawsuit could result in significant legal expenses and a large award against the Company:
UTMD’s devices are frequently used in inherently risky situations to help physicians achieve a more positive outcome than what might otherwise be the case. In any lawsuit where an individual plaintiff sufferssuffered permanent physical injury, the possibility of a large award for damages exists whether or not a causal relationship exists.
The Company'sCompany’s reliance on third party distributors in some markets may result in less predictable revenues:
UTMD’s distributors have varying expertise in marketing and selling specialty medical devices. They also sell other devices that may result in less focus on the Company'sCompany’s products. In some countries, notably China, Pakistan and India not subject to similarly rigorous standards, by copying, a distributor of UTMD'sUTMD’s products may eventually become a competitor with a cheaper but lower quality version of UTMD'sUTMD’s devices.
The loss of one or more key employees could negatively affect UTMD performance:
In a small company with limited resources, the distraction or loss of key personnel at any point in time may be disruptive to performance. The Company'sCompany’s benefits programs are key to recruiting and retaining talented employees. An increase in UTMD'sUTMD’s employee healthcare plan costs, for example, may cause the Company to have to reduce coverages which in turn represents a risk to retaining key employees.
Fluctuations in foreign currencies relative to the USD can result in significant differences in period to periodperiod-to-period financial results:
Since a significant portion of UTMD'sUTMD’s sales are invoiced in foreign currencies and consolidated financial results are reported in USD terms, a stronger USD can have negative revenue effects. Conversely, a weaker USD would increase foreign subsidiary operating costs in USD terms. For the portion of sales to foreign entities made in fixed USD terms, a stronger USD makes the devices more expensive and weakens demand. For the portion invoiced in a foreign currency, not only USD-denominated sales are reduced, but also gross profits may be reduced because finished distributed productsdevices and/or U.S. made raw materials and components are likely being purchased in fixed USD.
Trade restrictions and /or tariffs resulting from changing government trade policies have the Filshie Clip Systempotential to disrupt UTMD’s supply chain.
The COVID-19 pandemic could continue to disrupt UTMD’s supply chain or interfere with normal business operations due to Bayer stopping salesthe loss of the Essure device are uncertain,employee availability and may not materialize.
During 2Q 2022/ 1H 2022 UTMD purchased 30,105 of its shares in the open market for $2,495 including commissions and fees ($82.88/ share.) UTMD did not purchase any of its own securities during 9M 2017.1H 2021.
Item 6. Exhibits
| Exhibit # | SEC Reference # | Title of Document |
| 1 | 31 | Certification of CEO pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 2 | 31 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 3 | 32 | Certification of CEO pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 4 | 32 | Certification of Principal Financial Officer pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 5 | 101 ins | XBRL Instance |
| 6 | 101.sch | XBRL Schema |
| 7 | 101.cal | XBRL Calculation |
| 8 | 101.def | XBRL Definition |
| 9 | 101.lab | XBRL Label |
| 10 | 101.pre | XBRL Presentation |
Exhibit # | Title of Document |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101 | The following financial information from the Utah Medical Products, Inc. quarterly report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Condensed Balance Sheets, (ii) Consolidated Condensed Statements of Income, (iii) Consolidated Condensed Statements of Cash Flows, (iv) Consolidated Condensed Statements of Stockholders’ Equity, and (v) related Notes to the Consolidated Condensed Financial Statements, tagged in detail. |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchanges Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
UTAH MEDICAL PRODUCTS, INC.
REGISTRANT
Date: 8/11/22 By: /s/ Kevin L. Cornwell
Kevin L. Cornwell
CEO
Date: 8/11/22 By: /s/ Brian L. Koopman
Brian L. Koopman
Principal Financial Officer
20