UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For |
OR |
o 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 |
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 ☒x No ☐
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 ☒x No ☐o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated fi ler, 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 o | Accelerated filer x |
Non-accelerated filero | Smaller reporting companyo |
Emerging growth companyo |
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of May 8, 2019: 3,722,706.
UTAH MEDICAL PRODUCTS, INC.
INDEX TO FORM 10‑Q
PART I - FINANCIAL INFORMATIONPAGE
Item 1.Financial Statements
Consolidated Condensed Balance Sheets as of
March 31, 2020 and December 31, 2019 2
Consolidated Condensed Statements of Income for the
three months ended March 31, 2020 and March 31, 2019 3
Consolidated Condensed Statements of Cash Flows for
three months ended March 31, 2020 and March 31, 2019 4
Consolidated Statement of Stockholders’ Equity
three months ended March 31, 2020 and March 31, 2019 5
Notes to Consolidated Condensed Financial Statements 6
Item 2.Management’s Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3.Quantitative and Qualitative Disclosures About Market Risk 17
Item 4.Controls and Procedures 17
PART II – OTHER INFORMATION
Item 1.Legal Proceedings 18
Item 1A.Risk Factors 18
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 6.Exhibits 20
SIGNATURES 20
PART I - FINANCIAL INFORMATION | ||||||||||
|
|
|
| |||||||
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES | ||||||||||
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF | ||||||||||
MARCH 31, 2020 AND DECEMBER 31, 2019 | ||||||||||
(in thousands) | ||||||||||
|
|
|
| (unaudited) |
| (audited) | ||||
ASSETS |
| MARCH 31, 2020 |
| DECEMBER 31, 2019 | ||||||
Current assets: |
|
|
|
| ||||||
| Cash & Investments |
| $ 39,613 |
| $ 42,787 | |||||
| Accounts & other receivables, net |
| 4,410 |
| 4,742 | |||||
| Inventories |
| 6,757 |
| 6,913 | |||||
| Other current assets |
| 443 |
| 444 | |||||
|
| Total current assets |
| 51,223 |
| 54,886 | ||||
Property and equipment, net |
| 10,224 |
| 10,314 | ||||||
Operating Lease - Right of Use Assets, net |
| 404 |
| 414 | ||||||
Goodwill |
| 13,547 |
| 13,961 | ||||||
| Other intangible assets |
| 53,245 |
| 55,205 | |||||
| Other intangible assets - accumulated amortization | (25,449) |
| (24,993) | ||||||
Other intangible assets, net |
| 27,796 |
| 30,212 | ||||||
|
| Total assets |
| $ 103,194 |
| $ 109,787 | ||||
|
|
|
|
|
|
| ||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
| ||||||
Current liabilities: |
|
|
|
| ||||||
| Accounts payable |
| $ 1,057 |
| $ 1,098 | |||||
| Accrued expenses |
| 2,744 |
| 2,350 | |||||
|
| Total current liabilities |
| 3,801 |
| 3,448 | ||||
Deferred tax liability - Femcare IIA |
| 2,110 |
| 2,110 | ||||||
Other long term liabilities |
| 2,008 |
| 2,239 | ||||||
Operating Lease Liability |
| 366 |
| 376 | ||||||
Deferred income taxes |
| 523 |
| 521 | ||||||
|
| Total liabilities |
| 8,808 |
| 8,694 | ||||
|
|
|
|
|
|
| ||||
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 - March 31, 2020, 3,642 shares and |
|
|
| ||||||
| December 31, 2019, 3,722 shares |
| 36 |
| 37 | |||||
| Accumulated other comprehensive loss |
| (12,232) |
| (9,782) | |||||
| Additional paid-in capital |
| - |
| 18 | |||||
| Retained earnings |
| 106,582 |
| 110,820 | |||||
|
| Total stockholders' equity |
| 94,386 |
| 101,093 | ||||
|
|
|
|
|
|
| ||||
|
| Total liabilities and stockholders' equity |
| $ 103,194 |
| $ 109,787 | ||||
|
|
|
|
| ||||||
see notes to consolidated condensed financial statements |
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES | ||||||
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME | ||||||
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND MARCH 31, 2019 | ||||||
(in thousands, except per share amounts) | ||||||
(unaudited) | ||||||
|
|
|
| THREE MONTHS ENDED | ||
|
|
|
| MARCH 31, | ||
|
|
|
| 2020 |
| 2019 |
Sales, net |
| $ 10,902 |
| $ 10,732 | ||
|
|
|
|
|
|
|
Cost of goods sold |
| 4,066 |
| 3,959 | ||
| Gross profit |
| 6,836 |
| 6,773 | |
|
|
|
|
|
|
|
Operating expense |
|
|
|
| ||
| Selling, general and administrative |
| 2,838 |
| 2,557 | |
| Research & development |
| 135 |
| 115 | |
|
| Total operating expenses |
| 2,973 |
| 2,672 |
| Operating income |
| 3,863 |
| 4,101 | |
|
|
|
|
|
|
|
Other income |
| 125 |
| 36 | ||
| Income before provision for income taxes |
| 3,988 |
| 4,137 | |
|
|
|
|
|
|
|
Provision for income taxes |
| 848 |
| 998 | ||
|
| Net income |
| $ 3,140 |
| $ 3,139 |
|
|
|
|
|
|
|
Earnings per common share (basic) |
| $ 0.85 |
| $ 0.84 | ||
Earnings per common share (diluted) |
| $ 0.84 |
| $ 0.84 | ||
|
|
|
|
|
|
|
Shares outstanding (basic) |
| 3,707 |
| 3,722 | ||
Shares outstanding (diluted) |
| 3,724 |
| 3,738 | ||
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
| ||
| Foreign currency translation net of taxes of |
| $ (2,449) |
| $ 948 | |
|
| Total comprehensive income |
| $ 691 |
| $ 4,087 |
|
|
|
|
|
|
|
see notes to consolidated condensed financial statements |
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES | |||||||
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS | |||||||
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND MARCH 31, 2019 | |||||||
(in thousands - unaudited) | |||||||
|
|
|
|
| MARCH 31, | ||
|
|
|
|
| 2020 |
| 2019 |
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
| |||
Net income |
| $ 3,140 |
| $ 3,139 | |||
Adjustments to reconcile net income to net |
|
|
|
| |||
cash provided by operating activities: |
|
|
|
| |||
| Depreciation |
| 175 |
| 179 | ||
| Amortization |
| 1,630 |
| 1,271 | ||
| Provision for (recovery of) losses on accounts receivable |
| (14) |
| - | ||
| Amortization of Right of Use Assets |
| 9 |
| 10 | ||
| Deferred income taxes |
| (97) |
| (142) | ||
| Stock-based compensation expense |
| 23 |
| 28 | ||
| Tax benefit attributable to exercise of stock options |
| 3 |
| 13 | ||
Changes in operating assets and liabilities: |
|
|
|
| |||
|
| Accounts receivable and other receivables |
| 261 |
| (940) | |
|
| Inventories |
| 158 |
| (2,255) | |
|
| Prepaid expenses and other current assets |
| (12) |
| (23) | |
|
| Accounts payable |
| (31) |
| 1,868 | |
|
| Accrued expenses |
| 429 |
| 212 | |
|
|
| Total adjustments |
| 2,534 |
| 221 |
|
|
| Net cash provided by operating activities |
| 5,674 |
| 3,360 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
| |||
Capital expenditures for: |
|
|
|
| |||
| Property and equipment |
| (454) |
| (12) | ||
| Intangible assets |
| - |
| (21,000) | ||
|
|
| Net cash used in investing activities |
| (454) |
| (21,012) |
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
| |||
Proceeds from issuance of common stock - options |
| 48 |
| 97 | |||
Common stock purchased and retired |
| (6,426) |
| - | |||
Payment of dividends |
| (1,042) |
| (1,027) | |||
|
|
| Net cash used in financing activities |
| (7,420) |
| (930) |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
| (974) |
| 135 | |||
Net decrease in cash and cash equivalents |
| (3,174) |
| (18,447) | |||
Cash at beginning of period |
| 42,787 |
| 51,112 | |||
Cash at end of period |
| $ 39,613 |
| $ 32,665 | |||
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
| ||||
| Cash paid during the period for income taxes |
| $ 285 |
| $ 406 | ||
| Cash paid during the period for interest |
| - |
| - | ||
| |||||||
see notes to consolidated condensed financial statements |
UTAH MEDICAL PRODUCTS, INC. | |||||||||||
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | |||||||||||
Three Months Ended March 31, 2020 and 2019 | |||||||||||
(In thousands - unaudited) | |||||||||||
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| Additional |
| Other |
|
|
| Total |
| Common Stock |
| Paid-in |
| Comprehensive |
| Retained |
| Stockholders' | ||
| Shares |
| Amount |
| Capital |
| Income |
| Earnings |
| Equity |
Balance at December 31, 2019 | 3,722 |
| $ 37 |
| $ 18 |
| $ (9,783) |
| $ 110,820 |
| $ 101,092 |
Shares issued upon exercise of employee | 1 |
| - |
| 47 |
| - |
| - |
| 47 |
Stock option compensation expense | - |
| - |
| 23 |
| - |
| - |
| 23 |
Common stock purchased and retired | (80) |
| (1) |
| (89) |
| - |
| (6,336) |
| (6,426) |
Foreign currency translation adjustment | - |
| - |
| - |
| (2,449) |
| - |
| (2,449) |
Common stock dividends | - |
| - |
| - |
| - |
| (1,042) |
| (1,042) |
Net income | - |
| - |
| - |
| - |
| 3,140 |
| 3,140 |
Balance at March 31, 2020 | 3,642 |
| $ 36 |
| $ 0 |
| $ (12,232) |
| $ 106,582 |
| $ 94,386 |
Balance at December 31, 2018 | 3,720 |
| $ 37 |
| $ 121 |
| $ (11,290) |
| $ 100,124 |
| $ 88,992 |
Shares issued upon exercise of employee | 3 |
| - |
| 97 |
| - |
| - |
| 97 |
Stock option compensation expense | - |
| - |
| 28 |
| - |
| - |
| 28 |
Foreign currency translation adjustment | - |
| - |
| - |
| 948 |
| - |
| 948 |
Common stock dividends | - |
| - |
| - |
| - |
| (1,028) |
| (1,028) |
Net income | - |
| - |
| - |
| - |
| 3,139 |
| 3,139 |
Balance at March 31, 2019 | 3,723 |
| $ 37 |
| $ 246 |
| $ (10,343) |
| $ 102,235 |
| $ 92,176 |
|
|
|
|
|
|
|
|
|
|
|
|
see notes to consolidated condensed financial statements |
PART I - FINANCIAL INFORMATION | ||||||||
Item 1. Financial Statements | ||||||||
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES | ||||||||
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF | ||||||||
MARCH 31, 2019 AND DECEMBER 31, 2018 | ||||||||
(in thousands) | ||||||||
(unaudited) | (audited) | |||||||
ASSETS | MARCH 31, 2019 | DECEMBER 31, 2018 | ||||||
Current assets: | ||||||||
Cash & Investments | $ | 32,665 | $ | 51,112 | ||||
Accounts & other receivables, net | 4,909 | 3,956 | ||||||
Inventories | 7,648 | 5,412 | ||||||
Other current assets | 446 | 423 | ||||||
Total current assets | 45,668 | 60,903 | ||||||
Property and equipment, net | 10,238 | 10,359 | ||||||
Operating Lease - Right of Use Assets, net | 442 | - | ||||||
Goodwill | 13,842 | 13,703 | ||||||
Other intangible assets | 54,639 | 32,979 | ||||||
Other intangible assets - accumulated amortization | (19,778 | ) | (18,176 | ) | ||||
Other intangible assets, net | 34,861 | 14,803 | ||||||
Total assets | $ | 105,051 | $ | 99,768 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 2,847 | $ | 975 | ||||
Accrued expenses | 4,196 | 4,285 | ||||||
Total current liabilities | 7,043 | 5,260 | ||||||
Deferred tax liability - Femcare IIA | 2,441 | 2,441 | ||||||
Other long term liabilities | 2,496 | 2,540 | ||||||
Operating Lease Liability | 405 | - | ||||||
Deferred income taxes | 491 | 535 | ||||||
Total liabilities | 12,876 | 10,776 | ||||||
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 - March 31, 2019, 3,723 shares and December 31, 2018, 3,720 shares | 37 | 37 | ||||||
Accumulated other comprehensive income (loss) | (10,343 | ) | (11,290 | ) | ||||
Additional paid-in capital | 246 | 122 | ||||||
Retained earnings | 102,235 | 100,123 | ||||||
Total stockholders' equity | 92,175 | 88,992 | ||||||
Total liabilities and stockholders' equity | $ | 105,051 | $ | 99,768 |
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES | ||||||||
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME | ||||||||
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND MARCH 31, 2018 | ||||||||
(in thousands, except per share amounts) | ||||||||
(unaudited) | ||||||||
THREE MONTHS ENDED | ||||||||
MARCH 31, | ||||||||
2019 | 2018 | |||||||
Sales, net | $ | 10,732 | $ | 10,887 | ||||
Cost of goods sold | 3,959 | 3,965 | ||||||
Gross profit | 6,773 | 6,922 | ||||||
Operating expense | ||||||||
Selling, general and administrative | 2,557 | 1,838 | ||||||
Research & development | 115 | 113 | ||||||
Total operating expenses | 2,672 | 1,951 | ||||||
Operating income | 4,101 | 4,971 | ||||||
Other income (expense) | 36 | 37 | ||||||
Income before provision for income taxes | 4,137 | 5,008 | ||||||
Provision for income taxes | 998 | 916 | ||||||
Net income | $ | 3,139 | $ | 4,092 | ||||
Earnings per common share (basic) | $ | 0.84 | $ | 1.10 | ||||
Earnings per common share (diluted) | $ | 0.84 | $ | 1.09 | ||||
Shares outstanding (basic) | 3,722 | 3,725 | ||||||
Shares outstanding (diluted) | 3,738 | 3,748 | ||||||
Other comprehensive income (loss): | ||||||||
Foreign currency translation net of taxes of $0 and $0 | $ | 948 | $ | 1,301 | ||||
Total comprehensive income | $ | 4,087 | $ | 5,393 |
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES | ||||||||
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS | ||||||||
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND MARCH 31, 2018 | ||||||||
(in thousands - unaudited) | ||||||||
MARCH 31, | ||||||||
2019 | 2018 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 3,139 | $ | 4,092 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 179 | 200 | ||||||
Amortization | 1,271 | 570 | ||||||
Provision for (recovery of) losses on accounts receivable | - | 1 | ||||||
Amortization of Right of Use Assets | 10 | - | ||||||
Deferred income taxes | (142 | ) | (76 | ) | ||||
Stock-based compensation expense | 28 | 30 | ||||||
Tax benefit attributable to exercise of stock options | 13 | 16 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable and other receivables | (940 | ) | (560 | ) | ||||
Inventories | (2,255 | ) | (303 | ) | ||||
Prepaid expenses and other current assets | (23 | ) | (53 | ) | ||||
Accounts payable | 1,868 | 142 | ||||||
Accrued expenses | 212 | (293 | ) | |||||
Total adjustments | 221 | (326 | ) | |||||
Net cash provided by operating activities | 3,360 | 3,766 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Capital expenditures for: | ||||||||
Property and equipment | (12 | ) | (173 | ) | ||||
Intangible assets | (21,000 | ) | - | |||||
Net cash provided by (used in) investing activities | (21,012 | ) | (173 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of common stock - options | 97 | 147 | ||||||
Payment of dividends | (1,027 | ) | (1,005 | ) | ||||
Net cash provided by (used in) financing activities | (930 | ) | (858 | ) | ||||
Effect of exchange rate changes on cash | 135 | 243 | ||||||
Net increase (decrease) in cash and cash equivalents | (18,447 | ) | 2,978 | |||||
Cash at beginning of period | 51,112 | 39,875 | ||||||
Cash at end of period | $ | 32,665 | $ | 42,853 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for income taxes | $ | 406 | $ | 788 | ||||
Cash paid during the period for interest | - | - |
UTAH MEDICAL PRODUCTS, INC.
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | Stockholders' | ||||||||||||||||||||
Shares | Amount | Capital | Income | Earnings | Equity | |||||||||||||||||||
Balance at December 31, 2018 | 3,720 | $ | 37 | $ | 121 | $ | (11,290 | ) | $ | 100,124 | $ | 88,992 | ||||||||||||
Shares issued upon exercise of employee stock options for cash | 3 | 0 | 97 | - | - | 97 | ||||||||||||||||||
Stock option compensation expense | - | - | 28 | - | - | 28 | ||||||||||||||||||
Foreign currency translation adjustment | - | - | - | 948 | - | 948 | ||||||||||||||||||
Common stock dividends | - | - | - | - | (1,028 | ) | (1,028 | ) | ||||||||||||||||
Net income | - | - | - | - | 3,139 | 3,139 | ||||||||||||||||||
Balance at March 31, 2019 | 3,723 | $ | 37 | $ | 246 | $ | (10,343 | ) | $ | 102,235 | $ | 92,176 | ||||||||||||
Balance at December 31, 2017 | 3,721 | $ | 37 | $ | 809 | $ | (8,341 | ) | $ | 85,618 | $ | 78,123 | ||||||||||||
Shares issued upon exercise of employee stock options for cash | 9 | 0 | 372 | - | - | 372 | ||||||||||||||||||
Shares received and retired upon exercise of stock options | (2 | ) | (0 | ) | (225 | ) | - | - | (225 | ) | ||||||||||||||
Stock option compensation expense | - | - | 30 | - | - | 30 | ||||||||||||||||||
Foreign currency translation adjustment | - | - | - | 1,301 | - | 1,301 | ||||||||||||||||||
Common stock dividends | - | - | - | - | (1,006 | ) | (1,006 | ) | ||||||||||||||||
Net income | - | - | - | - | 4,092 | 4,092 | ||||||||||||||||||
Balance at March 31, 2018 | 3,728 | $ | 37 | $ | 986 | $ | (7,040 | ) | $ | 88,704 | $ | 82,687 |
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
(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‑K10-K for the year ended December 31, 2018.2019. 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.
The Company has determined that other recently issued accounting standards will either have no material impact on its consolidated financial position, results of operations or cash flows, or will not apply to its operations.
(3)Inventories at March 31, 20192020 and December 31, 20182019 consisted of the following:
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
Finished goods | $ | 3,686 | $ | 1,615 | ||||
Work‑in‑process | 1,129 | 1,103 | ||||||
Raw materials | 2,833 | 2,694 | ||||||
Total | $ | 7,648 | $ | 5,412 |
| March 31, 2020 | December 31, 2020 |
Finished goods | $ 1,437 | $ 1,708 |
Work-in-process | 1,237 | 1,022 |
Raw materials | 4,083 | 4,183 |
Total | $ 6,757 | $ 6,913 |
(4)Stock-Based Compensation. At March 31, 2019,2020, the Company has stock-based employee compensation plans which authorize the grant of stock options to eligible employees and directors. The Company accounts for stock compensation under FASB Accounting Standards Codification (“ASC”) 718,Compensation - Stock Compensation.Compensation. This statement requires the Company to recognize compensation cost based on the grant date fair value of options granted to employees and directors. In the quarters ended March 31, 20192020 and 2018,2019, the Company recognized $28$23 and $30,$28, respectively, in stock based compensation cost.
(5)Warranty Reserve. The Company’s published warranty is: “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, 20182019 or March 31, 2019.
(6) Global1Q 2020 global revenues (USD) by product category:
Domestic | Outside US | Total | ||||||||||
Obstetrics | $ | 1,027 | $ | 312 | $ | 1,339 | ||||||
Gynecology/Electrosurgery/Urology | 2,078 | 3,504 | 5,582 | |||||||||
Neonatal | 1,170 | 340 | 1,510 | |||||||||
Blood Pressure Monitoring and Accessories | 1,519 | 782 | 2,301 | |||||||||
Total | $ | 5,794 | $ | 4,938 | $ | 10,732 |
|
|
| Domestic |
|
| Outside US |
|
| Total |
Obstetrics |
| $ | 909 |
| $ | 249 |
| $ | 1,158 |
Gynecology/Electrosurgery/Urology |
|
| 2,817 |
|
| 3,075 |
|
| 5,892 |
Neonatal |
|
| 1,141 |
|
| 443 |
|
| 1,584 |
Blood Pressure Monitoring and Accessories |
|
| 1,576 |
|
| 692 |
|
| 2,268 |
Total |
| $ | 6,443 |
| $ | 4,459 |
| $ | 10,902 |
(7) Leases
UTMD has operating leases for a portion of its parking lot at its Midvale facility and an automobile at its Ireland facility. The remaining lease term on the parking lot is 12 years and on the automobile it is 3 years. There are no options to extend or terminate the leases. UTMD has no other leases yet to commence. As neither lease contains
implicit rates, UTMD’s incremental borrowing rate, based on information available at adoption date, was used to determine the present value of the leases.
The components of lease cost were as follows: | Three Months Ended March 31, 2019 | |||
Operating Lease Cost (in thousands) | $ | 15 | ||
Right of Use Assets obtained in exchange for new operating lease obligations | $ | 42 |
The components of lease cost were as follows: | Three Months Ended March 31, | 2020 | ||
Operating Lease Cost (in thousands) | $15 | |||
Right-of-Use Assets in exchange for new operating lease obligations | 0 | |||
Other Information | Three Months Ended March 31, 2020 | |||
Weighted Average Remaining Lease Term - Operating Leases | 11 years | |||
Weighted Average Discount Rate – Operating Leases | 5.4% |
Operating lease liabilities/ payments (in thousands) | ||||
Operating lease payments, 2019 | $ | 60 | ||
Operating lease payments, 2020 | $ | 60 | ||
Operating lease payments, 2021 | $ | 60 | ||
Operating lease payments, 2022 | $ | 45 | ||
Operating lease payments, 2023 | $ | 45 | ||
Thereafter | $ | 344 |
Reconciliation of operating lease liabilities/ payments to operating lease liabilities | (in thousands) | |||
Total operating lease liabilities/ payments | $ | 614 | ||
Operating lease liabilities | $ | 442 | ||
Present value adjustment | $ | 172 |
Maturities of lease liabilities were as follows: | (in thousands) | |||
Year ending December 31, | ||||
2019 | $ | 37 | ||
2020 | $ | 38 | ||
2021 | $ | 40 | ||
2022 | $ | 27 | ||
2023 | $ | 29 | ||
Thereafter | $ | 280 |
Operating lease liabilities/ payments | (in thousands) |
Operating lease payments, 2020 | $60 |
Operating lease payments, 2021 | 60 |
Operating lease payments, 2022 | 45 |
Operating lease payments, 2023 | 45 |
Operating lease payments, 2024 | 45 |
Thereafter | 299 |
Reconciliation of operating lease liabilities/ payments to operating lease liabilities | (in thousands) |
Total operating lease liabilities/ payments | $536 |
Operating lease liabilities | 404 |
Present value adjustment | $132 |
Maturities of lease liabilities were as follows: | (in thousands) |
Year ending December 31, |
|
2020 | $38 |
2021 | 40 |
2022 | 27 |
2023 | 29 |
2024 | 30 |
Thereafter | 248 |
(8) Distribution Agreement Purchase.
UTMD completed the purchase of exclusive U.S. distribution rights for the9) Earnings Per Share. Basic earnings per share is calculated by dividing net income attributable to the common stockholders of the agreement, UTMD also purchasedcompany by the remaining CSI inventory for approximately $2,000.
The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share:
(in thousands) | Three months ended | |
| March 31, | |
| 2020 | 2019 |
Numerator |
|
|
Net income | 3140 | 3139 |
|
|
|
Denominator |
|
|
Weighted average shares, basic | 3707 | 3722 |
Dilutive effect of stock options | 17 | 16 |
Diluted shares | 3724 | 3738 |
|
|
|
Earnings per share, basic | 0.85 | 0.84 |
Earnings per share, diluted | 0.84 | 0.84 |
(10) 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.
General
Utah Medical Products, Inc. (UTMD) manufactures and markets a well-established range of specialty medical devices. The Company’s Form 10-K Annual Report for the year ended December 31, 20182019 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 month period in comparison with a previous three 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; 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 1Q 2019the first quarter (1Q) of 2020 compared to 1Q 20182019 were as follows:
1Q 2019 | 1Q 2018 | change | ||||||||||
Net Sales | $ | 10,732 | $ | 10,887 | ( 1.4 | %) | ||||||
Gross Profit | 6,773 | 6,922 | ( 2.2 | %) | ||||||||
Operating Income | 4,102 | 4,971 | (17.5 | %) | ||||||||
Income Before Tax | 4,137 | 5,008 | (17.4 | %) | ||||||||
Net Income | 3,139 | 4,092 | (23.3 | %) | ||||||||
Earnings per Share | $ | 0.840 | $ | 1.092 | (23.1 | %) |
| 1Q 2020 | 1Q 2019 | change |
Net Sales | $ 10,902 | $ 10,732 | +1.6 % |
Gross Profit | 6,836 | 6,773 | +0.9 % |
Operating Income | 3,863 | 4,102 | (5.8%) |
Income Before Tax | 3,988 | 4,137 | (3.6%) |
Net Income | 3,140 | 3,139 | - |
Earnings per Share | $ 0.843 | $ 0.840 | +0.4 % |
Profit margins in 1Q 20192020 compared to 1Q 20182019 follow:
1Q 2019 (JAN – MAR) | 1Q 2018 (JAN – MAR) | |||||||
Gross Profit Margin (gross profits/ sales): | 63.1 | % | 63.6 | % | ||||
Operating Income Margin (operating income/ sales): | 38.2 | % | 45.7 | % | ||||
EBT Margin (profits before income taxes/ sales): | 38.5 | % | 46.0 | % | ||||
Net Income Margin (profit after taxes/ sales): | 29.2 | % | 37.6 | % |
| 1Q 2020 (JAN – MAR) | 1Q 2019 (JAN – MAR) |
Gross Profit Margin (Gross Profit/ sales): | 62.7% | 63.1% |
Operating Income Margin (Operating Income/ sales): | 35.4% | 38.2% |
EBT Margin (Profits before Income Taxes/ sales): | 36.6% | 38.5% |
Net Income Margin (Profit after Taxes/ sales): | 28.8% | 29.2% |
Although sales and gross profits were higher in 1Q 2020 than in 1Q 2019, the corona virus (COVID-19) pandemic substantially hampered financial results beginning in March. UTMD’s gynecology/ electrosurgery/ urology (GYN) product category is primarily comprised of devices used in procedures which are considered “elective” in the current pandemic. Sales of the Filshie® Clip System (Filshie devices), which are included in the GYN product category, were $764 (+83%) higher in 1Q 2020 than in 1Q 2019 because UTMD first began selling Filshie devices directly to domestic end-users in February 2019 (part way through 1Q 2019), after acquiring the exclusive distribution rights from CooperSurgical Inc. Although a very short span of time, a better comparison might be that domestic Filshie device sales were 25% lower in March 2020 compared to the January/February 2020 monthly average. Outside the U.S. (OUS), Filshie device sales, which were for the full quarter in each year, were $513 (19%) lower. On a constant currency basis (foreign currency sales converted to USD at the same foreign currency exchange (FX) rate as in the prior year’s 1Q), OUS Filshie device sales were $440 (17%) lower. In other words, at least 14% of the decline in OUS Filshie device sales was due to a stronger USD in 1Q 2020 compared to 1Q 2019.
Because 30%26% of consolidated sales and 39%32% of consolidated operating expenses (in USD terms) are in foreign currencies, the change in foreign currency exchange (FX)FX rates for sales and expenses outside the U.S. (OUS)OUS had an impact on period-to-period relative financial results. FX rates for income statement purposes are transaction-weighted averages. The average FX rates from the applicable foreign currency to USD during 1Q 20192020 and 1Q 20182019 follow:
| 1Q 2020 | 1Q 2019 | Change |
GBP | 1.283 | 1.304 | (1.6%) |
EUR | 1.108 | 1.134 | (2.3%) |
AUD | 0.655 | 0.713 | (8.1%) |
CAD | 0.750 | 0.753 | (0.5%) |
1Q 2019 | 1Q 2018 | Change | ||||||||||
GBP | 1.304 | 1.391 | (6.3 | %) | ||||||||
EUR | 1.134 | 1.226 | (7.5 | %) | ||||||||
AUD | 0.713 | 0.786 | (9.4 | %) | ||||||||
CAD | 0.753 | 0.791 | (4.8 | %) |
The weighted average negative impact on all foreign currency sales was 7.2%2.6%, reducing reported USD sales by $237$78 relative to the same foreign currency sales in 1Q 2018.2019. In constant currency terms, i.e. using the same FX rates as in 1Q 2018, total consolidated 1Q 20192020 sales were up $83$247 (+1%2.3%).
UTMD’s 1Q 20192020 Gross Profit Margin did not benefit from the mid-quarter acquisition of distribution rights of its Filshie Clip System (Filshie) in the U.S. from CooperSurgical Inc (CSI), because UTMD sold remaining CSI Filshie inventory which it had acquired at the same price CSI had paid Femcare for it. In other words, GP resulting from CSI’s price minus the cost of manufacturing had been realized in prior periods. About half of the lower GPM was due to an unfavorable quarter for expenses under UTMD’s Health Care Plan for its U.S. employees, under which UTMD self-insures. The remaining small reduction in GPM was due to tariffs andsqueezed by higher raw material costs including tariffs promulgated by Trump economic policies.direct materials costs. The productivity of UTMD’s direct labor and manufacturing overhead expenses despite recent cost of living increases, were consistent with the prior year.
UTMD’s Operating Income Margin (OIM)in 1Q 2020 was substantially reduced by$238 lower than in 1Q 2019 because of a $737$368 higher expense from amortization ofamortizing the $21,000 purchase price that UTMD paid CSI to acquire the remaining 4.75 years’ exclusive U.S. Filshie distribution rights. The purchase price of CSI’s remaining exclusive distribution rights was recognized asis an identifiable intangible asset (IIA). Because that will be amortized at a rate of $1,105 per quarter until October 2023 (14.3 more quarters), as part of General and Administrative (G&A) expenses. Excluding the IIA amortization is on a straight-line basis over 4.75 years, and the improved GP expected from the acquisition will ramp up after the CSI inventory has been consumed, management believes that the negative comparison of UTMD’s OIM relative to prior periods was at its maximum in 1Q 2019. IIA amortization expense, in total, including that remaining from the 2011 Femcare acquisition, which comprise a significant portion of General & Administrative (G&A) operating expenses,UTMD’s Operating Income margin was 11.7% of consolidated sales. In other words, UTMD’s OIM excluding IIA expense was about 50%45.6% in 1Q 2019.
Income Before Tax (EBT) was consistent with the OI comparison betweendown less than Operating Income because 1Q 20192020 non-operating income (NOI) which was $36$89 higher compared to $37 NOI in 1Q 2018. UTMD’s Net Income Margin (NIM) in 1Q 20192019. The higher non-operating income was substantially lower than in 1Q 2018 not only because of the impact of new IIA amortization expense, but also due to a combined$44 gain in the USD-remeasured value of foreign currency bank balances instead of a $50 loss reported in 1Q 2019. Net Income and Earnings Per Share (EPS) were essentially the same in both periods as the 21.3% consolidated income tax provision rate in 1Q 2019 that2020 was lower than the 24.1% compared to only 18.3% of EBTrate in 1Q 2018.2019. The reasons for the higher provision rate were three: 1) a redistribution mix of subsidiary EBT, 2) a higher U.S. income tax provision rate, as a result of the GILTI tax slipped into the U.S. Tax Cuts and Jobs Act (TCJA), enacted in December 2017, and 3) substantial tax deductions80,000 UTMD shares repurchased by UTMD in 1Q 2018 that did not recur2020 had only a small impact on diluted shares for calculating EPS as the shares were purchased in 1Q 2019 for IrelandMarch and the UK as a result of native currency translation losses in ending USD cash balances. USD translation losses or gains in Ireland and the UK do not affect UTMD’s consolidated income statement except in accrued taxes.
UTMD’s March 31, 20192020 Balance Sheet, in the absence of debt, remained strong. Ending Cash and Investments were $32.7$39.6 million on March 31, 20192020 compared to $51.1$42.8 million on December 31, 2018,2019, after investing $23.1using $6.4 million acquiring CSI’s Filshie distribution rights and remaining inventory,
to repurchase 80,000 UTMD shares in the open market in March, and paying $1.0 million in cash dividends to stockholders during 1Q 2019.2020. Stockholders’ Equity was up $3.2(SE) declined $6.7 million in the three month period from December 31, 2018.2019 because the $7.4 million in stock repurchases and dividends reduced SE. The lower converted USD value of fixed assets outside the U.S. (OUS) also helped reduce SE. FX rates for Balance Sheet purposes are the applicable rates at the end of each reporting period. The FX rates from the applicable foreign currency to USD for assets and liabilities at the end of 1Q 20192020 and the end of 1Q 20182019 follow:
3-31-19 | 3-31-18 | Change | ||||||||||
GBP | 1.303 | 1.402 | (7.1 | %) | ||||||||
EUR | 1.229 | 1.232 | (0.2 | %) | ||||||||
AUD | 0.710 | 0.769 | (7.6 | %) | ||||||||
CAD | 0.749 | 0.775 | (3.5 | %) |
| 3-31-20 | 12-31-19 | Change |
GBP | 1.245 | 1.327 | (6.1%) |
EUR | 1.102 | 1.123 | (1.8%) |
AUD | 0.614 | 0.703 | (12.6%) |
CAD | 0.708 | 0.771 | (8.2%) |
b)
RevenuesTerms of sale are established in advance of UTMD’s acceptance of customer orders. In the U.S., Ireland, UK and Australia prior to 2017, UTMD generally accepted orders directly from and shipped directly to end user clinical facilities, as well as third party medical/surgical distributors, under UTMD’s Standard Terms and Conditions (T&C) of Sale. The same was true in 2017 with the addition of direct shipments to end user facilities in Canada and France. About 14% of UTMD’s domestic end user sales, excluding Femcare’s Filshie Clip System sales to its exclusive U.S. distributor, CooperSurgical Inc. (CSI), 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 to end user facilities are substantially the same in the U.S., Canada, Ireland, UK, France and Australia.
UTMD may have separate discounted pricing agreements with a specific clinical facility or group of affiliated facilities based on volume of purchases. Pricing agreements which are documented arrangements with clinical facilities, or groups of affiliated facilities, 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’s best estimate of volume is usually accepted by UTMD for determining the ensuing fixed prices for the agreement period. Prices 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’s disclosure that the selling price is fixed prior to the acceptance of a specific customer order.
Total consolidated 1Q 20192020 UTMD sales were $154 (1.4%$169 (+1.6%) lowerhigher than in 1Q 2018.2019. Constant currency sales were $83$247 (+0.8%2.3%) higher. U.S. domestic sales were 10%11% higher and outside the U.S. (OUS)OUS sales were 12% lower.10% lower in USD terms. Because of the relatively short span of time, results for any given three month period in comparison with a previous three month period may not be indicative of comparative results for the year as a whole.
Domestic sales in 1Q 20192020 were $5,794$6,443 compared to $5,254$5,794 in 1Q 2018.2019. The components of domestic sales include 1) “direct other device sales” of UTMD’s medical devices to user facilities (and med/surg stocking distributors for hospitals), excluding Filshie device sales, 2) “OEM sales” of components and other products manufactured by UTMD for other medical device and non-medical device companies, and 3) “Filshie“direct Filshie device sales”, which beginning in 1Q 2018 were by UTMD’s UK subsidiary, Femcare Ltd (Femcare), to CSI for distribution in the U.S., and in 1QFebruary 2019 were by UTMD direct to U.S. clinical users after February 1.users. Direct other device sales, representing 60%52% of total domestic sales, were $260 (+8%$125 (4%) higherlower in 1Q 20192020 than in 1Q 2018.2019. OEM sales, representing 24%21% of total domestic sales, were $484just $9 (+54%1%) higher. However,Direct Filshie device sales were $204 (18%$764 (+83%) lowerhigher in 1Q 20192020 compared to 1Q 2018.2019. However, the average daily rate of direct U.S. Filshie device sales by Femcare to CSIwas 30% lower in 1Q 2018 represented over 4 months’ worth of 2018 Filshie sales at a “wholesale” distributor price, whereas Filshie sales by UTMD in 1Q 2019 represented lessMarch than six weeks of demand at a “retail” end-user price due to a start-up conversion of customers to UTMD and CSI dumping of inventory in January. UTMD expects this comparison will flip in the first two months of 1Q 2020.
In the short time period during April ensuing the end of 1Q 2020, at possibly the height of concern regarding COVID-19, incoming U.S. orders for Filshie devices have been 63% lower than in the first two months of the year. Assuming April sales rate continues through June would yield just $700 in 2Q 2020 direct U.S. Filshie device sales compared to $1,979 in 2Q 2019. A number of UTMD’s other directiongynecology/ electrosurgery/ urology devices are also considered “elective” in the current environment, but unless economic conditions deteriorate to the point where the quality of essential care in general continues to suffer, demand for UTMD’s critical care devices, including devices used in L&D and the remaining three quarters in 2019, with total 2019 domestic Filshie sales more than double 2018 domestic Filshie sales.
OUS sales in 1Q 20192020 were $4,938$4,459 compared to $5,633$4,938 in 1Q 2018.2019. OUS sales invoiced in GBP, EUR, AUD and CAD currencies were $237$78 lower solely as a result of changes in FX rates. In other words, 34%at least 16% of the lower OUS sales was due to a stronger USD. The foreignForeign currency OUS sales in 1Q 2020 were $2,866, which was 64% of all OUS sales and 26% of total consolidated sales. Foreign currency OUS sales in 1Q 2019 were $3,206, which was 65% of all OUS sales and 30% of total consolidated sales. Foreign currencyIn USD terms, OUS Filshie device sales in 1Q 2018 were $3,614, which was 64% of all$513 (19%) lower. OUS sales and 33% of total consolidated sales. U.S. exportdirect end-user sales in USD terms were 26% lower in Ireland, 22% lower in Canada, 12% lower in France, 11% lower in the UK and 9% lower in Australia. Because all of neonatal devices (not affected bythe OUS direct end-user sales were in foreign currencies, a portion of the decline was due to the stronger USD as noted in the FX rates)rate table above. Although Filshie device sales to OUS distributors were $41836% lower in 1Q 20192020 compared to 1Q 20182019, some of the difference was just uneven order pattern as distributors order larger quantities of devices in less frequent intervals compared to direct users.
Recognizing a resulthigh level of uncertainty, a pauseprojection of the ensuing 2Q 2020 consolidated revenues at the current April incoming order rate extrapolates to 40% lower 2Q 2020 consolidated revenues compared to 2Q 2019 revenues. What happens after 2Q 2020 depends in orders from UTMD’s distributorslarge part not only on when hospitals once again allow so-called elective procedures, but also on when patients again feel confident in China and Brazil while obtaining regulatory device re-registrations.
Trade sales are sales to third parties, excluding sales from one UTMD entity to another.another, which are called intercompany sales. Intercompany sales and profits are eliminated from consolidated financial results. Ireland subsidiary 1Q 20192020 trade sales were $51 higher$185 (14%) lower than in 1Q 2018 despite the almost 8%2019 helped in part by an average 2.3% weaker EUR. Ireland EUR sales were €130 higher.€142 (12%) lower. Trade sales in 1Q 2020 by UTMD’s UK subsidiary, Femcare Ltd, were $1,311$183 (13%) lower, while in GBP terms, UK trade sales were £874 lower.£126 (12%) lower than in 1Q 2019. Femcare Ltd trade sales suffered not only becauseinclude Filshie device sales directly to France medical facilities where the elective procedure restriction effects of a 6% weaker GBP, but also because Femcare “traded”COVID-19 may have exhibited earlier than in the tradeUK. Trade sales to its third party U.S. distributor, CSI, in 1Q 2018 for intercompany sales (not trade) to its parent U.S. distributor, UTMD, in 1Q 2019. Trade sales2020 by UTMD’s Australia subsidiary to Australian end user facilities in 1Q 2019 were $74$37 (9%) lower than in 1Q 2018,2019, but only AUD 4 (less than 1%) lower as the AUD was the weakest foreign currency relative to the USD, down in value more than 9% weaker.8%. Trade sales by UTMD’s Canada subsidiary to Canadian end user facilities in 1Q 20192020 were $132$123 (22%) lower than in 1Q 2018 both as2019, representing the poorest sales results of UTMD’s foreign direct Filshie device sales, leveraged down only slightly by a result of a 5% weaker CAD. Canada subsidiary sales were CAD and 14% lower native currency sales.160 (21%) lower. Because of the relatively short span of time, sales results for any given three month period in comparison with a previous three month period may not be indicative of comparative results for the year as a whole.
The following table provides USD sales amounts divided into general product categories for total sales and the subset of OUS sales:
Global revenues (USD) by product category:
1Q 2019 | % | 1Q 2018 | % | |||||||||||||
Obstetrics | $ | 1,339 | 12 | $ | 1,086 | 10 | ||||||||||
Gynecology/ Electrosurgery/ Urology | 5,582 | 52 | 6,201 | 57 | ||||||||||||
Neonatal | 1,510 | 14 | 1,710 | 16 | ||||||||||||
Blood Pressure Monitoring and Accessories* | 2,301 | 22 | 1,890 | 17 | ||||||||||||
Total: | $ | 10,732 | 100 | $ | 10,887 | 100 |
| 1Q 2020 | % | 1Q 2019 | % |
Obstetrics | $ 1,158 | 11 | $ 1,339 | 12 |
Gynecology/ Electrosurgery/ Urology | 5,892 | 54 | 5,582 | 52 |
Neonatal | 1,584 | 14 | 1,510 | 14 |
Blood Pressure Monitoring and Accessories* | 2,268 | 21 | 2,301 | 22 |
Total: | $10,902 | 100 | $ 10,732 | 100 |
OUS revenues (USD) by product category:
1Q 2019 | % | 1Q 2018 | % | |||||||||||||
Obstetrics | $ | 312 | 6 | $ | 209 | 4 | ||||||||||
Gynecology/ Electrosurgery/ Urology | 3,504 | 71 | 3,908 | 69 | ||||||||||||
Neonatal | 340 | 7 | 745 | 13 | ||||||||||||
Blood Pressure Monitoring and Accessories* | 782 | 16 | 771 | 14 | ||||||||||||
Total: | $ | 4,938 | 100 | $ | 5,633 | 100 |
| 1Q 2020 | % | 1Q 2019 | % |
Obstetrics | $ 249 | 6 | $ 312 | 6 |
Gynecology/ Electrosurgery/ Urology | 3,075 | 69 | 3,504 | 71 |
Neonatal | 443 | 10 | 340 | 7 |
Blood Pressure Monitoring and Accessories* | 692 | 15 | 782 | 16 |
Total: | $ 4,459 | 100 | $ 4,938 | 100 |
*includes molded components sold to OEM customers.
c)
Gross Profit (GP)GP results from subtracting the costs of manufacturing and shipping products to customers. UTMD’s GP was $149 (2.2%$63 (0.9%) lowerhigher in 1Q 2020 than in 1Q 2019 thanbecause of higher revenues. However, UTMD’s GP Margin was slightly lower at 62.7% in 1Q 2018, consistent with the decrease in revenues. UTMD did not get a GPM benefit from the mid-quarter beginning of Filshie sales direct2020 compared to U.S. end-users because of selling remaining CSI inventory which it acquired at the same price CSI had previously paid Femcare. GP resulting from CSI’s price minus the Femcare cost of manufacturing had been realized in prior periods. In other words, UTMD’s GP from U.S. Filshie sales63.1% in 1Q 2019 was limited to the CSI distributor margin. In addition, Femcare Ltd (UK subsidiary) did not make a GP contribution in 1Q 2019 from sales of Filshie devices to CSI which it had made in 1Q 2018. Because UTMD estimates that the remaining CSI inventory may not be depleted until the end of 3Q 2019, it does not expect a significant improvement in GPM until 4Q 2019. In addition, about half of the half percentage point lower GPM in 1Q 2019 was due to an unfavorable experience in U.S. employee medical costs, for which UTMD self-insures.higher direct material costs. Otherwise, the Company maintained the productivity of its direct labor and manufacturing overhead costs in its manufacturing operations consistent with the prior 1Q 20182019 period.
d)
Operating IncomeOperating Income results from subtracting Operating Expenses (OE) from GP. OE,Operating Expenses, comprised of G&A expenses, S&Msales and marketing (S&M) expenses and product development (R&D) expenses, were $2,973 in 1Q 2020 (27.3% of sales) compared to $2,671 in 1Q 2019 (24.9% of sales) compared to $1,952 in 1Q 2018 (17.9% of sales). Ignoring the new CSI (USD) IIA amortization expense which was not present$368 higher than in 2018, 1Q 2019, OE expensesOperating Expenses were $1,868 (17.1% of sales) in 1Q 2020, and $1,935 (18.0% of sales). in 1Q 2019. A stronger USD in this instance helped OIOperating Income performance by reducing OUS OEOperating Expenses in USD terms by $75, reducing$20, the reduction split by Femcare GBP IIA amortization expense by $35of $8 and all other OUS OE by $40.
Consolidated G&A expenses were $2,419 (22.2% of sales) in 1Q 2020 compared to $2,140 (19.9% of sales) in 1Q 2019 compared to $1,429 (13.1% of sales) in 1Q 2018.2019. The G&A expenses in 1Q 20192020 included $520 (4.8%$512 (4.7% of sales) of non-cash expense from the amortization of IIA resulting from the 2011 Femcare acquisition, which were $555 (5.1%$520 (4.8% of sales) in 1Q 2018.2019. The lower USD amortization expense was the result of the stronger USD, as the Femcare amortization expense in GBP was £399 in both periods. In addition, 1Q 20192020 G&A expenses included a new $737 (6.9%$1,105 (10.1% of sales) IIA amortization expense resulting from the purchase of the CSI remaining U.S. exclusive Filshie distribution rights.rights, which was $737 (6.9% of sales) in 1Q 2019. Excluding theboth Filshie-related non-cash IIA amortization expenses, G&A expenses were $802 (7.4% of sales) in 1Q 2020 compared to $883 (8.2% of sales) in 1Q 2019 compared to $874 (8.0% of sales) in 1Q 2018.2019. The change in FX rates reduced 1Q 20192020 OUS G&A expenses excluding IIA amortization expense by $31.$8. The higherlower 1Q 20192020 constant currency G&A expenses were due to TGAlower U.S. G&A salaries including stock option expense, and lower regulatory consulting expenses in Australia. G&A expenses include the cost of outside financial auditors and corporate governance activities related to the implementation of SEC rules resulting from the Sarbanes-Oxley Act of 2002, as well as estimated stock-based compensation cost, a noncash expense. Option compensation expense included in G&A expenses was $28 in 1Q 2019 compared to $30 in 1Q 2018.
S&M expenses were $417$419 (3.8% of sales) in 1Q 2020 compared to $416 (3.9% of sales) in 1Q 2019 compared to $409 (3.8% of sales) in 1Q 2018.2019. The change in FX rates reduced 1Q 20192020 OUS S&M expenses by $9. The higher constant currency 1Q 2019 S&M expenses were due to incremental marketing expenses associated with beginning to market Filshie directly in the U.S.
R&D expenses in 1Q 20192020 were $135 (1.2% of sales) compared to $115 (1.1% of sales) compared to $113 (1.0% of sales) in 1Q 2018.2019. Since almost all R&D is being carried out in the U.S., there was negligible FX rate impact.
In summary, Operating Income in 1Q 2020 was $3,863 (35.4% of sales) compared to $4,102 (38.2% of sales) in 1Q 2019. The additional $368 CSI IIA amortization expense accounted for the lower Operating Income and Operating Income Margin.
Summary comparison of (USD) consolidated OE:
1Q 2019 | 1Q 2018 | |||||||
S&M Expense | $ | 416 | $ | 409 | ||||
R&D Expense | 115 | 113 | ||||||
G&A Expense | 2,140 | 1,429 | ||||||
Total Operating Expenses: | $ | 2,671 | $ | 1,952 |
| 1Q 2020 | 1Q 2019 |
S&M Expense | 419 | 416 |
R&D Expense | 135 | 115 |
G&A Expense: |
|
|
CSI IIA amortization | 1,105 | 737 |
Femcare IIA amortization | 512 | 520 |
All Other G&A Expenses | 802 | 883 |
Total Operating Expenses: | 2,973 | 2,671 |
e)
Non-operatingNon-operating expense/ Non-operating income includes the combination of 1) expenses from loan interest and bank fees; 2) expenses or income from losses or gains from remeasuring the value of EUR cash bank balances in the UK, and GBP cash balances in Ireland, in USD terms; and 3) income from rent of underutilized property, investment income and royalties received from licensing the Company’s technology. Negative NOENon-operating expense is NOI.negative Non-operating income. Net NOINon-operating income in 1Q 20192020 was $36$125 compared to $37 NOI$36 in 1Q 2018.
f)
Income Before Income Taxes (EBT)Income before income taxes (EBT) results from subtractingadding net non‑operating expense (NOE) or adding NOI from orNon-operating income to as applicable, OI.Operating Income. Consolidated 1Q 20192020 EBT was $3,988 (36.6% of sales) compared to $4,137 (38.5% of sales) compared to $5,008 (46.0% of sales) in 1Q 2018.2019. The $871 (17.4%$149 (3.6%) lower 1Q 20192020 EBT compared to 1Q 20182019 was consistent withdue to the lower OI.
The EBT of Utah Medical Products, Inc. in the U.S. was $2,497 in 1Q 2020 compared to $2,628 in 1Q 2019 compared to $2,252 in 1Q 2018.2019. The EBT of Utah Medical Products, Ltd (Ireland) was EUR 1,116 in 1Q 2020 compared to EUR 814 in 1Q 2019 compared to EUR 797 in 1Q 2018.2019. The EBT of Femcare Group Ltd (Femcare Ltd., UK and Femcare Australia Pty Ltd) was GBP 148 in 1Q 2020 compared to GBP 585 in 1Q 2019 compared to GBP 1,063 in 1Q 2018.2019. The 1Q 20192020 EBT of Utah Medical Products Canada, Inc. (dba Femcare Canada) was CAD 257 compared to CAD 355 in 1Q 2019 compared to CAD 471 in 1Q 2018.2019. The lower Femcare Group and Femcare Canada EBT was primarily the result of no UKlower Filshie device sales. The higher UTMD Ireland EBT was primarily due to consistent international trade sales of pressure monitoring kits combined with higher intercompany shipments of Filshie devicesSterishot kits to Australia and Filshie clips to the U.S. after depletion of the inventory that UTMD acquired from CSI in 1Q 2019, compared to $1,1292019.
EBITDA is a non-US GAAP metric that measures profitability performance without factoring in 1Q 2018 shipments. The lower Femcare Canada EBT was due to lower sales activity.
UTMD’s non-US GAAP adjusted consolidated EBITDA is the sum of the following elements in the table below, each of which is a US GAAP number:
| 1Q 2020 | 1Q 2019 |
EBT | $3,988 | $4,137 |
Depreciation Expense | 175 | 179 |
Femcare IIA Amortization Expense | 512 | 520 |
CSI IIA Amortization Expense | 1,105 | 737 |
Other Non-Cash Amortization Expense | 13 | 14 |
Stock Option Compensation Expense | 23 | 28 |
Interest Expense | - | - |
Remeasured Foreign Currency Balances | (44) | 50 |
UTMD non-US GAAP EBITDA: | $5,772 | $5,665 |
g)
Net IncomeNet Income in 1Q 20192020 of $3,140 was essentially the same as Net Income of $3,139 was 23.3% lower than the NI of $4,092 in 1Q 2018. UTMD’s NIM, NI divided by consolidated sales, was 29.2% in 1Q 2019 and 37.6% in 1Q 2018.2019. The average consolidated income tax provisions (as a %percent of EBT) in 1Q 20192020 and 1Q 20182019 were 24.1%21.3% and 18.3%24.1%, respectively. The income tax provision for 1Q 20192020 was higher by $241$114 lower than it would have been withusing the 1Q 2018 provision2019 rate. The higherlower combined tax provision rate resulted from
h) Earnings Per Share (EPS)
EPS are consolidated NINet Income divided by the weighted average number of shares of stock outstanding (diluted to take into consideration stock option awards which are “in the money,” i.e., have exercise prices below the applicable period’s weighted average market value). EPS in 1Q 20192020 were 23.1% lower thanpractically the same as in 1Q 2018,2019, consistent with the change in NI because diluted shares used to calculate EPS were only slightly lower. Diluted shares were 3,724,156 in 1Q 2020 compared to 3,738,373 in 1Q 2019 compared to 3,747,780 in 1Q 2018.2019. The lower diluted shares in 1Q 20192020 were the combined result of 15,0005,000 shares repurchased in 4Q 2018,May 2019 and 80,000 shares repurchased in March 2020, offset by employee option exercises, a new employee option award of 26,300 shares in December 2018late March 2020 and a lowerhigher dilution factor for unexercised options due to a lowerhigher share price.
Outstanding shares at the end of 1Q 2020 were 3,642,431 compared to 3,721,757 at the end of calendar year 2019. The difference was due to the 80,000 share repurchase less 674 shares in employee option exercises during 1Q 2020. For comparison, outstanding shares were 3,722,706 at the end of 1Q 2019. The total number of outstanding unexercised employee and outside director options at March 31, 20192020 was 57,35077,315 at an average exercise price of $57.90,$64.71, including shares awarded but not yet vested. This compares to 61,02057,350 unexercised option shares at the end of 20181Q 2019 at an average exercise price of $56.78/$57.90/ share, including shares awarded but not vested.
The number of shares added as a dilution factor in 1Q 20192020 was 16,33017,313 compared to 22,84016,326 in 1Q 2018.2019. In December 2018, 22,400March 2020, 26,300 option shares were awarded to 4548 employees at an exercise price of $74.64$77.05 per share. No other options were awarded in 2018, and no options were awarded in 1Q 2019.
In March 2020, UTMD repurchased 15,00080,000 of its shares in the open market at $80.35/$80.32/ share. During the rest of 2018 and during 1QIn May 2019, UTMD did not repurchase shares.repurchased 5,000 shares at $79.52/ share. No other shares were repurchased in 2019. The Company retains the strong desire and financial ability for repurchasing its shares at a price it believes is attractive for remaining
i)
Return on Equity (ROE)ROE is the portion of NINet Income retained by UTMD to internally finance its growth, divided by the average accumulated stockholders’ equity for the applicable time period. Annualized ROE (before stockholder dividends) in 1Q 20192020 was 17%13% and in 1Q 20182019 was 20%17%. Because Net Income was the same in both periods, the lower ROE in 1Q 2020 was due to much higher average Stockholders’ Equity. Targeting a high ROE of 20% remains a key financial objective for UTMD management. ROE can be increased by increasing NI,Net Income, or by reducing 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 $5,674 in 1Q 2020 compared to $3,360 in 1Q 2019 compared2019. Since Net Income was the same in both periods, the substantial difference was due to $3,766greater amortization expense along with changes in 1Q 2018.working capital. The most significant differences in cash provided during the two periods were the $953$158 lower net income offset by $700ending inventories in 1Q 2020 compared to $2,255 higher amortization expense, andinventories in 1Q 2019 due to the purchase of CSI Filshie device inventory in 1Q 2019, a $1,952$231 decrease in trade accounts receivable (A/R) in 1Q 2020 compared to a $940 increase in 1Q 2019 A/R, a $218 higher increase in inventories offset byaccrued expenses and a $1,726$359 higher increase in accounts payable. Another difference in use of cash was a $380 higher increase in accounts receivable. Cash benefited from a $505 difference in change of accrued expenses.
Capital expenditures for property and equipment (PP&E) were $454 in 1Q 2020 compared to $12 in 1Q 2019 compared to $173as UTMD invested in 1Q 2018.a state-of-art testing machine for its specialized pressure transducers for its bio-pharmaceutical OEM customer, and a new molding machine for increased capacity. Depreciation of PP&E was $175 in 1Q 2020 compared to $179 in 1Q 2019 compared to $200 in 1Q 2018.2019. Both capital expenditures and depreciation are expected to increase during the balance of 20192020 as the Company plans to investneeds a new roof for its Midvale facility and depreciation for the PPE just put in certain equipment for further developing its in-house Utah processing capabilities.
Cash dividends paid to stockholders in 1Q 20192020 were $1,027$1,042 compared to $1,005$1,027 in 1Q 2018.
In 1Q 2020, UTMD received $47 and issued 674 shares of its stock upon the exercise of employee stock options. Option exercises in 1Q 2020 were at an average price of $70.47 per share. In comparison, in 1Q 2019 UTMD received $97 and issued 2,991 shares of its stock upon the exercise of employee stock options. Option exercises in 1Q 2019 were at an average price of $32.33 per share. In comparison, in 1Q 2018 the Company received $147 and issued 8,620 shares of stock on the exercise of employee stock options, net of 2,439 shares retired upon employees trading those shares in payment of the stock option exercise price. Option exercises in 1Q 2018 were at an average price of $43.17 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.survive the COVID-19 pandemic shutdown of the U.S. economy. As it did in 1Q 2019, 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; 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’s existing infrastructure. If there are no better strategic uses for UTMD’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 LiabilitiesMarch 31, 20192020 total consolidated assets increased $5,283declined $6,593 from December 31, 20182019 to $105,051.$103,193. The increasedecline was essentially due to a $20,197 increase$3,174 decrease in net intangible assets offset bycash and investments, a $15,234$489 decrease in current assets other than cash, and $2,830 lower net intangible assets. SignificantIn addition to the decrease in cash which resulted from $7,468 use of cash for share repurchases and payment of stockholder dividends, significant changes in current assets from the end of 20182019 included a $953 increase$332 decrease in consolidated net trade receivables and a $2,235 increase$157 decrease in consolidated inventoriesinventories.
The 1Q 2020 ending lower net intangible assets resulted from amortization expense of $1,630 and a $18,447 decrease4.4% lower GBP/USD exchange rate on remaining Femcare IIA. At March 31, 2020, net intangible assets including goodwill were 40% of total consolidated assets compared to 40% at year-end 2019 (because of the large reduction in cash.cash during 1Q 2020), and 46% at March 31, 2019.
The Net Book Value (NBV) of consolidated property, plant and equipment (PP&E) fixed assets decreased $100 as a combined result of $454 in new purchases, $175 in depreciation and $379 in lower USD NBV due to ending FX rate changes. PP&E assets in the U.S. increased $162 as investment in new manufacturing equipment exceeded
depreciation. But the NBV of PP&E OUS in USD at March 31, 2020 declined $262 in the aggregate, affected by the change in FX rates which changed significantly near the end of the quarter as a result of the COVID-19 pandemic. FX rates for Balance Sheet purposes are the applicable rates at the end of each reporting period. UTMD’s IrelandFemcare subsidiary EUR-denominatedPP&E assets in the UK and Australia were $320 lower as, in addition to the UK GBP-denominated assets translated into USD at an FX rate 2.0%6.1% lower (weaker EUR) than the FX rate at the end of 2018. On the other hand, UTMD’s UK subsidiary GBP-denominated2019, Australia AUD-denominated assets were translated into USD at an FX rate 2.1% higher (stronger GBP)12.6% lower than the FX rate at the end of 2018.2019. Because UTMD’s Australia subsidiary AUD-denominated assets were translated into USD at an FX rate 0.8% higher (stronger AUD) than the FX rate at the end of 2018. Canada subsidiary CAD-denominated assets were translated into USD at an FX rate 2.1% higher (stronger CAD)8.2% lower than the FX rate at the end of 2018. Consolidated net property, plant and equipment2019 in addition to depreciation, PP&E in Canada was $62 lower than at the end of 2019. Ireland PP&E NBV increased $320 at March 31, 2019 from December 31, 2018 due to the change in ending FX rates, $442 added for right$119 despite a 1.8% lower EUR as a result of use assets created with the adoption of the new lease standard, $12investment in new asset purchases and $179 in depreciation.
Working capital (current assets minus current liabilities) was $47,422 at March 31, 2020 compared to $51,438 at December 31, 2019, and $38,625 at March 31, 2019 compared to $55,643 at December 31, 2018.2019. Current assets declined $3,662 and current liabilities increased $1,784, with a $1,939 increase in accounts payable (A/P) including a $2,048 payable to CSI for its inventory, which was paid in April.$354 from the end of 2019. UTMD management believes that its working capital remains sufficient to meet normal operating needs, new capital investments and projected cash dividend payments to stockholders.
The deferred tax liability balance for the Femcare Ltd IIA ($9,084 on the date of the 2011 acquisition) was $2,008 at March 31, 2020 compared to $2,239 at December 31, 2019 and $2,496 at March 31, 2019 compared to $2,541 at December 31, 2018 and $3,111 at March 31, 2018.2019. Reduction of the deferred tax liability occurs as the book/tax difference of amortization is eliminated over the remaining useful life of the Femcare Ltd IIA. UTMD’s total debt ratio (total liabilities/total assets) as of March 31, 20192020 was 12%9% compared to 11%8% as of December 31, 2018 as a result2019 (again, because of the short term A/P due CSI for its Filshie inventory.1Q 2020 reduction in cash). UTMD’s total debt ratio as of March 31, 20182019 was 15%12%.
l)
Management's OutlookEven though the COVID-19 pandemic has significantly changed UTMD’s financial outlook as outlined in its December 31, 20182019 SEC 10-K report, UTMD’s operating plan for 2019 is2020 remains to
1) exploit distribution and manufacturing synergies by further integrating capabilities and resources in its multinational operations; 2) focus on effectively direct marketing of the benefits of the Filshie Clip System in the U.S.; 3) introduce additional products helpful to clinicians through internal new product development; 4) continue to achieve profitable overall | |
5) utilize positive cash generation to continue providing cash dividends to stockholders and make open market share repurchases if/when compared to 1Q 2018, management believes that it isthe UTMD share price seems undervalued; and
6) be vigilant for accretive acquisition opportunities which may be brought about by the current challenging economic environment on track to accomplish its previously stated objectives for the full year of 2019.
m)
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” 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.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
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 .8906, .8729.9071, .8907 and .8119.8906 EUR per USD as of March 31, 2019,2020, December 31, 20182019 and March 31, 2018,2019, respectively. Exchange rates were .7672, .7837.8029, .7537, and .7130.7672 GBP per USD as of March 31, 2019,2020, December 31, 20182019 and March 31, 2018,2019, respectively. Exchange rates were 1.4083, 1.41931.6285, 1.4226 and 1.30081.4083 AUD per USD on March 31, 2019,2020, December 31, 20182019 and March 31, 2018,2019, respectively. Exchange rates were 1.3644, 1.3359,1.4118, 1.2962, and 1.28951.3644 CAD per USD on March 31, 2019,2020, December 31, 2018,2019, and March 31, 20182019 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, and by optimizing global account structures through liquidity management accounts.
The Company’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’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2019.2020. Based on this evaluation, the Chief Executive Officer and Principal Financial Officer concluded that, as of March 31, 2019,2020, the Company’s disclosure controls and procedures were effective.
There were no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended March 31, 2019,2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II - OTHER INFORMATION
The Company may be a party from time to time in litigation incidental to its business. Presently, there is no litigation for which the Company believes the outcome may be material to its financial results.
In addition to the other information set forth in this report, investors should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in UTMD’s Annual Report on Form 10-K for the year ended December 31, 2018,2019, 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’s business, financial condition and/or operating results.
Legislative or executive order healthcare reform in the United States, particularly as embodiedsuggested by leading candidates in The Patient Protection and Affordable Care Act anda presidential election year, have 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 ledpotential 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:
The unconstitutional result is that all companies, including UTMD, are considered guilty prior to proving their innocence.
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, into undifferentiated commodities. GPOs have been granted an antitrust exemption by the U.S. Congress. Otherwise, their business model based on “kickbacks” would be a violation of law. 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’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’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:
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’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’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’s products. In some countries, notably China, Pakistan and India not subject to similarly rigorous standards, a distributor of UTMD’s products may eventually become a competitor with a cheaper but lower quality version of UTMD’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’s benefits programs are key to recruiting and retaining talented employees. An increase in UTMD’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 period financial results:
Since a significant portion of UTMD’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 potential to disrupt UTMD’s supply chain.
The economic effects of government intervention in the private sector economy due to the COVID-19 pandemic has created a high level of uncertainty.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
During 1Q 2020, UTMD purchased 80,000 of its shares in the open market for $6,426 including commissions and fees ($80.32/ share). UTMD did not purchase any of its own securities during 1Q 2019, but purchased 5,000 shares for $398 ($79.52/share) in 2Q 2019, which was the total number of shares repurchased in 2019.
Exhibit # | SEC Reference # | Title of Document |
31 | Certification of CEO pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
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 | |
32 | Certification of CEO pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
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 |
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: 5/8/20 By: /s/ Kevin L. Cornwell
Kevin L. Cornwell
CEO
Date: 5/8/20 By: /s/ Brian L. Koopman
Brian L. Koopman
Principal Financial Officer
20