Atrion (ATRI) 10-Q 2024 Q1 Quarterly report

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 the Quarterly Period Ended March 31, 2024

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 Number 001-32982

Atrion Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware	63-0821819
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

One Allentown Parkway, Allen, Texas 75002

(Address of Principal Executive Offices) (Zip Code)

(972) 390-9800

(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, Par Value $0.10 per share	ATRI	The Nasdaq Global Select  Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 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 (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Registration S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 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's classes of common stock, as of the latest practicable date.

Title of Each Class	Number of Shares Outstanding at April 26, 2024
Common stock, Par Value $0.10 per share	1,759,954

ATRION CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

PART I. Financial Information			2
	Item 1.	Financial Statements	3
		Condensed Consolidated Statements of Income (Unaudited) For the Three Months Ended  March 31, 2024 and March 31, 2023	3
		Condensed Consolidated Balance Sheets (Unaudited) March 31, 2024 and December 31, 2023	4
		Condensed Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2024 and March 31, 2023	5
		Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) For the Three Months Ended March 31, 2024 and March 31, 2023	6
		Notes to Condensed Consolidated Financial Statements (Unaudited)	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
	Item 4.	Controls and Procedures	17
PART II. Other Information			17
	Item 1.	Legal Proceedings	17
	Item 1A.	Risk Factors	17
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
	Item 6.	Exhibits	18
SIGNATURES			19

1

PART I

FINANCIAL INFORMATION

2

Item 1.   Financial Statements.

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 (Unaudited)

	Three Months Ended March 31,
	2024			2023
	(in thousands, except per share amounts)
Revenues	$	47,334		$	39,993
Cost of goods sold		34,983			24,912
Gross profit		12,351			15,081
Operating expenses:
Selling		2,772			2,727
General and administrative		4,787			6,254
Research and development		1,650			1,630
		9,209			10,611
Operating income		3,142			4,470
Interest and dividend income		156			240
Other investment income/(losses)		(109	)		(721	)
Other income		14			10
		61			(471	)
Income before provision for income taxes		3,203			3,999
Provision for income taxes		(411	)		(514	)
Net income	$	2,792		$	3,485
Net income per basic share	$	1.59		$	1.98
Weighted average basic shares outstanding		1,760			1,762
Net income per diluted share	$	1.59		$	1.98
Weighted average diluted shares outstanding		1,761			1,763
Dividends per common share	$	2.20		$	2.15

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

3

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2024			December 31, 2023
Assets	(in thousands)
Current assets:
Cash and cash equivalents	$	7,135		$	3,565
Short-term investments		2,760			2,691
Accounts receivable		25,116			23,029
Inventories		75,000			82,307
Prepaid expenses and other current assets		2,503			3,173
		112,514			114,765
Long-term investments		8,853			8,165
Property, plant and equipment		289,054			286,445
Less accumulated depreciation and amortization		164,446			161,098
		124,608			125,347
Other assets and deferred charges:
Patents and licenses		1,043			1,072
Goodwill		9,730			9,730
Other		1,879			1,746
		12,652			12,548
Total assets	$	258,627		$	260,825
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	11,112		$	12,515
Accrued income and other taxes		1,140			106
		12,252			12,621
Other non-current liabilities		4,452			5,315
Stockholders’ equity:
Common stock, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares		342			342
Additional paid-in capital		67,472			67,331
Retained earnings		380,665			381,754
Treasury shares,1,660 at March 31, 2024 and 1,660 at December 31, 2023, at cost		(206,556	)		(206,538	)
Total stockholders’ equity		241,923			242,889
Total liabilities and stockholders’ equity	$	258,627		$	260,825

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

4

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2024			2023
	(In thousands)
Cash flows from operating activities:
Net income	$	2,792		$	3,485
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,943			3,509
Deferred income taxes		(135	)		(1,394	)
Stock-based compensation		235			407
Net change in unrealized gains and losses on investments		109			721
Net change in accrued interest, premiums, and discounts on investments		(5	)		(77	)
		6,939			6,651
Changes in operating assets and liabilities:
Accounts receivable		(2,087	)		4,527
Inventories		7,307			(9,300	)
Prepaid expenses		345			979
Other non-current assets		192			382
Accounts payable and accrued liabilities		(1,504	)		167
Accrued income and other taxes		1,034			984
Other non-current liabilities		(728	)		(62	)
Cash flows from operating activities		11,498			4,328
Cash flows from investing activities:
Property, plant and equipment additions		(3,175	)		(7,543	)
Purchase of investments		(3,608	)		(4,160	)
Proceeds from sale of investments		228			52
Proceeds from maturities of investments		2,519			11,574
Cash flows from investing activities		(4,036	)		(77	)
Cash flows from financing activities:
Purchase of treasury stock		-			(613	)
Shares tendered for employees’ withholding taxes on stock-based compensation		(20	)		(22	)
Dividends paid		(3,872	)		(3,784	)
Cash flows from financing activities		(3,892	)		(4,419	)
Net change in cash and cash equivalents		3,570			(168	)
Cash and cash equivalents at beginning of period		3,565			4,731
Cash and cash equivalents at end of period	$	7,135		$	4,563
Cash paid for:
Income taxes	$	11		$	146

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements

5

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

For the Three Months Ended
	Common Stock					Treasury Stock					Additional
	Shares Outstanding			Amount		Shares		Amount			Paid-in Capital		Retained Earnings			Total
Balances, January 1, 2023		1,761		$	342		1,659	$	(204,830	)	$	66,347	$	377,682		$	239,541
Net income														3,485			3,485
Stock-based compensation transactions									2			35					37
Shares surrendered in stock transactions									(22	)							(22	)
Purchase of treasury stock		(1	)				1		(613	)							(613	)
Dividends														(3,787	)		(3,787	)
Balances, March 31, 2023		1,760		$	342		1,660	$	(205,463	)	$	66,382	$	377,380		$	238,641
Balances, January 1, 2024		1,760		$	342		1,660	$	(206,538	)	$	67,331	$	381,754		$	242,889
Net income														2,792			2,792
Stock-based compensation transactions									2			141					143
Shares surrendered in stock transactions									(20	)							(20	)
Purchase of treasury stock																	-
Dividends														(3,881	)		(3,881	)
Balances, March 31, 2024		1,760		$	342		1,660	$	(206,556	)	$	67,472	$	380,665		$	241,923

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements

6

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Atrion Corporation and its subsidiaries (collectively referred to herein as “Atrion,” the “Company,” “we,” “our,” or “us”) have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, these statements include all normal and recurring adjustments necessary to present a fair statement of our consolidated results of operations, financial position, and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s financial statements in conformity with US GAAP requires management to make estimates and assumptions that can have a significant impact on our revenue, operating income, and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments, and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of May 10, 2024, the date of issuance of this Quarterly Report on Form 10-Q. However, these estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments, and estimates, and make changes as we deem necessary.

This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 ("2023 Form 10-K").

(2) Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined by using the first-in, first-out method. The following table details the major components of inventories (in thousands):

	March 31,		December 31,
	2024		2023
Raw materials	$	36,518	$	37,770
Work in process		17,756		17,462
Finished goods		20,726		27,075
Total inventories	$	75,000	$	82,307

The decrease in inventories is partially due to a $2.3 million one-time inventory write-off at one of our subsidiaries attributable to a correction of a prior-year immaterial error related to our 2023 10-K.

7

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3) Income per share

The following is the computation for basic and diluted income per share:

	Three Months Ended March 31,
	2024		2023
	(in thousands, except per share amounts)
Net income	$	2,792	$	3,485
Weighted average basic shares outstanding		1,760		1,762
Add: Effect of dilutive securities		1		1
Weighted average diluted shares outstanding		1,761		1,763
Earnings per share:
Basic	$	1.59	$	1.98
Diluted	$	1.59	$	1.98

Incremental shares from stock options and restricted stock units were included in the calculation of weighted average diluted shares outstanding using the treasury stock method. Potential dilutive securities have been excluded when their inclusion would be anti-dilutive. 

(4) Investments

As of March 31, 2024, we held investments in bonds, money market accounts, mutual funds, and equity securities. The bonds are considered held-to-maturity and are recorded at amortized cost in the accompanying consolidated balance sheets. The money market accounts, equity securities, and mutual funds are recorded at fair value in the accompanying consolidated balance sheets. The fair values of these investments were estimated using recently executed transactions and market price quotations. We consider as current assets those investments which will mature in the next 12 months including interest receivable on the long-term bonds. The remaining investments are considered non-current assets which we intend to hold longer than 12 months.

8

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The components of the Company’s cash and cash equivalents and our short- and long-term investments are as follows (in thousands):

	March 31,  2024		December 31, 2023
Cash and cash equivalents:
Money market funds	$	7,133	$	3,563
Cash deposits		2		2
Total cash and cash equivalents	$	7,135	$	3,565
Short-term investments:
Bonds (held-to-maturity)	$	2,618	$	2,552
Equity securities (available for sale)		142		139
Total short-term investments	$	2,760	$	2,691
Long-term investments:
Equity securities (available for sale)	$	4,227	$	4,354
Bonds (held-to-maturity)		3,307		3,575
Mutual funds (available for sale)		1,319		236
Total long-term investments	$	8,853	$	8,165
Total cash, cash equivalents and short and long-term investments	$	18,748	$	14,421

We utilize a lifetime “expected credit loss” measurement objective for the recognition of credit losses for held-to-maturity securities at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. During the first quarter of 2024, our allowance for credit losses was immaterial.

9

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the amortized cost of our held-to-maturity bonds at March 31, 2024 aggregated by credit quality indicator (in thousands):

Held-to-Maturity Bonds
Credit Quality Indicators	Fed Govt. Bonds/Notes		Corporate Bonds		Totals
AAA/AA/A	$	2,384	$	500	$	2,884
BBB/BB		-		3,041		3,041
TOTAL	$	2,384	$	3,541	$	5,925

Our investments are required to be measured for disclosure purposes at fair value on a recurring basis. Our investments are considered Level 1 or Level 2 as detailed in the table below. The fair values of these investments were estimated using recently executed transactions and market price quotations. The amortized cost and fair value of our investments, and the related gross unrealized gains and losses, were as follows as of the dates shown below (in thousands):

					Gross Unrealized
	Level		Cost		Gains		Losses			Fair Value
As of March 31, 2024:
Money market		1		7,133	$	-	$	-		$	7,133
Bonds		2		5,925	$	1	$	(86	)	$	5,840
Mutual funds		1		1,347	$	-	$	(28	)	$	1,319
Equity investments		2		6,054	$	-	$	(1,685	)	$	4,369
As of December 31, 2023:
Money Market		1		3,563	$	-	$	-		$	3,563
Bonds		2		6,127	$	1	$	(82	)	$	6,046
Mutual funds		1		279	$	-	$	(43	)	$	236
Equity investments		2		6,054	$	-	$	(1,561	)	$	4,493

The carrying value of our investments is reviewed quarterly for changes in circumstances or the occurrence of events that suggests an investment may not be fully recoverable. The bonds represent investments in various issuers at March 31, 2024. The unrealized losses for some of these bond investments reflect changes in interest rates following their acquisition. As of March 31, 2024, we had four bond investments in a loss position for more than 12 months.

At March 31, 2024, the length of time to maturity for the bonds we held ranged from 12 to 24 months.

10

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(5) Patents and Licenses

Patents and license fees paid for the use of other entities’ patents are amortized over the useful life of the patent or license. The following tables provide information regarding patents and licenses (dollars in thousands):

March 31, 2024						December 31, 2023
Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization		Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization
	15.67	$	13,840	$	12,797		15.67	$	13,840	$	12,768

Aggregated amortization expense for patents and licenses was $29 thousand and $28 thousand in the three-month period ended March 31, 2024 and March 31, 2023, respectively.

Estimated future amortization expense for each of the years set forth below ending December 31 is as follows (in thousands):

2025	$	112
2026	$	112
2027	$	108
2028	$	108
2029	$	108

(6) Revenues

We recognize revenue when performance obligations under the terms of a contract with our customer are satisfied. This occurs with the transfer of control of our products to customers when products are shipped. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services. Sales and other taxes we may collect concurrent with revenue-producing activities are excluded from revenue.

A summary of revenue by geographic area, based on shipping destination, for the three months ended March 31, 2024 and 2023 is as follows (in thousands):

	2024		2023
United States	$	31,087	$	24,868
European Union		6,313		8,085
All other regions		9,934		7,040
Total	$	47,334	$	39,993

A summary of revenue by product line for the three months ended March 31, 2024 and 2023 is as follows (in thousands):

	2024		2023
Fluid Delivery	$	19,537	$	17,585
Cardiovascular		20,016		15,665
Ophthalmology		1,476		1,359
Other		6,305		5,384
Total	$	47,334	$	39,993

11

ATRION CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

More than 98 percent of our total revenue in the periods presented herein is pursuant to shipments initiated by a purchase order (our “contract”) and recognized at a single point in time when the performance obligation of the product being shipped is satisfied, rather than recognized over time, and is presented as a receivable on the balance sheet. Payment is typically due within 30 days.

We maintain an allowance for credit losses to reflect estimated losses resulting from the failure of customers to make required payments. We calculate our credit loss allowance for our trade receivables following a lifetime “expected credit loss” measurement objective. An account is written off when we determine the receivable will not be collected. Historically, bad debt has been immaterial.

We have elected to recognize the cost of shipping as an expense in cost of sales when control over the product has transferred to the customer.

We do not make any material accruals for product returns and warranty obligations because our returns and warranty obligations have been very low due to our focus on quality control.

We do not disclose the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount for which we have the right to invoice. We believe that the complexity added to our disclosures by the inclusion of a large amount of insignificant detail in attempting to disclose information about immaterial contracts would potentially obscure more useful and important information.

(7) Recent Accounting Pronouncements

From time to time, new accounting pronouncements applicable to us are issued by the Financial Accounting Standards Board or other standards-setting bodies. We generally adopt these standards as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

We develop and manufacture products primarily for medical applications. We market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians, hospitals, clinics, and other treatment centers. Our medical products primarily serve the fluid delivery, cardiovascular, and ophthalmology markets. Our other medical and non-medical products include instrumentation and disposables used in valves and inflation devices used in marine and aviation safety products.

Our products are used in a wide variety of applications by numerous customers. We encounter competition in all of our markets and compete primarily on the basis of product quality, price, engineering, customer service, and delivery time.

Our business strategy is to provide hospitals, physicians, and other healthcare providers with the tools they need to improve the lives of the patients they serve. To do so, we provide a broad selection of products in the areas of our expertise. We have diverse product lines serving primarily the fluid delivery, cardiovascular, and ophthalmic markets, and this diversity has served us well as we encounter changing market conditions. Research and development, or R&D, efforts are focused on improving current products and developing highly-engineered products that meet customer needs and serve niche markets with meaningful sales potential. Proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable. We also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes. We have been successful in consistently generating cash from operations and have used that cash to reduce or eliminate indebtedness, to fund capital expenditures, to make investments, to repurchase stock, and to pay dividends.

Our strategic objective is to further enhance our position in our served markets by:

· Focusing on customer needs;

· Expanding existing product lines and developing new ones;

· Investing in our future growth, while balancing the need to sensibly control cost; and

· Preserving and fostering a collaborative, entrepreneurial management culture.

For the three months ended March 31, 2024, we reported revenues of $47.3 million, up 18 percent, operating income of $3.1 million, down 30 percent, and net income of $2.8 million, down 20 percent as compared to the three months ended March 31, 2023.

Results for the three months ended March 31, 2024

Consolidated net income totaled $2.8 million, or $1.59 per basic and diluted share, in the first quarter of 2024. This is compared with consolidated net income total of $3.5 million, or $1.98 per basic and diluted share, in the first quarter of 2023. The income per basic share computations are based on weighted average basic shares outstanding of 1,760 thousand in the 2024 period and 1,762 thousand in the 2023 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,761 thousand in the 2024 period and 1,763 thousand in the 2023 period.

13

Consolidated revenues of $47.3 million for the first quarter of 2024 were 18.4 percent higher than revenues of $40.0 million for the first quarter of 2023. Our first quarter 2024 results were favorably impacted by a 27.8 percent increase in Cardiovascular revenue, an 11.1 percent increase in Fluid Delivery revenue, an 8.6 percent increase in Ophthalmic revenue, and a 17.1 percent increase in Other product line revenue as compared to the first quarter of 2023.

Revenues by product line were as follows (in thousands):

	Three Months Ended March 31,
	2024		2023
Fluid Delivery	$	19,537	$	17,585
Cardiovascular		20,016		15,665
Ophthalmology		1,476		1,359
Other		6,305		5,384
Total	$	47,334	$	39,993

Cost of goods sold of $35.0 million for the first quarter of 2024 was 40.4 percent higher than our cost of goods sold of $24.9 million for the first quarter of 2023, primarily due to increased revenue, and higher manufacturing costs, including a $2.3 million one-time inventory write-off at one of our subsidiaries attributable to a correction of a prior-year immaterial error related to our 2023 10-K. Our cost of goods sold in the first quarter of 2024 was 73.9 percent of revenue compared to 62.3 percent of revenue in the first quarter of 2023.

Gross profit of $12.4 million in the first quarter of 2024 was $2.7 million or 18.1 percent lower than in the comparable 2023 period. Our gross profit percentage in the first quarter of 2024 was 26.1 percent of revenues compared with 37.7 percent of revenues in the first quarter of 2023. The decrease in gross profit percentage in the 2024 period compared to the 2023 period was related to the higher manufacturing costs mentioned above, as well as mix of products sold.

Our first quarter 2024 operating expenses of $9.2 million were $1.4 million lower than the operating expenses for the first quarter of 2023. This decrease was attributable to a $1.5 million decrease in general and administrative expenses, largely driven by reduced compensation costs, partially offset by an increase in selling expense of $44.7 thousand driven by commissions. There was also a slight increase of $20.7 thousand in research and development expenses driven by supplies, which was offset by a decrease in outside services.

Operating income of $3.1 million in the first quarter of 2024 represented a $1.3 million, or 29.7 percent, decrease in operating income as compared to first quarter 2023 operating income. This decrease was due to the gross profit decrease discussed above. Operating income was 6.6 percent of revenues for the first quarter of 2024 and 11.2 percent of revenues for the first quarter of 2023.

14

Interest and dividend income in the first quarter of 2024 was $156 thousand compared with $240 thousand for the same period in the prior year. The decrease in interest and dividend income was due to a decrease in interest income as compared to first quarter of 2023.

Other investment income in the first quarter of 2024 was a $109 thousand loss compared with $721 thousand loss in the first quarter of 2023. These amounts were attributable to unrealized losses on equity investments resulting from changes in the market values of the investments in each quarter.

Income tax expense was $411 thousand for the first quarter of 2024 compared with $514 thousand for the first quarter of 2023. The effective tax rate for the first quarter of 2024 was 12.8 percent compared with 12.9 percent for the first quarter of 2023.

Liquidity and Capital Resources

As of March 31, 2024, we had a $25.0 million revolving credit facility with a money-center bank pursuant to which the lender is obligated to make advances until December 21, 2026. The credit facility is secured by substantially all of our inventories, equipment, and accounts receivable. Interest under the credit facility is assessed at 30-day, 60-day, or 90-day Adjusted Term SOFR, as selected by us, plus 1.0 percent, and is payable monthly. We had no outstanding borrowings under the credit facility at March 31, 2024, and we were in compliance with all financial covenants.

At March 31, 2024, we had a total of $18.7 million in cash and cash equivalents, short-term investments, and long-term investments. At December 31, 2023, cash and cash equivalents, short-term investments, and long-term investments totaled $14.4 million.

Cash flows from operating activities of $11.5 million for the three months ended March 31, 2024 were primarily comprised of net income plus the net effect of non-cash expenses, a decrease in inventory, and an increase in accounts receivable. During the first three months of 2024, we used $3.8 million to pay dividends, $3.6 million to purchase investments, and $3.2 million for the addition of property and equipment. During the same period, our maturities and sales of investments generated $2.7 million in cash. For the three months ended March 31, 2023, cash flows from operating activities of $4.3 million were primarily comprised of net income plus the net effect of non-cash expenses, an increase in inventory, and a decrease in accounts receivable. During the first three months of 2023, we used $7.5 million for the addition of property and equipment, $4.2 million for the purchase of investments, $3.8 million for dividends, and $613 thousand for the purchase of treasury stock. During the same period, maturities and sales of investments generated $11.6 million in cash.

At March 31, 2024, we had working capital of $100.3 million, including $7.1 million in cash and cash equivalents and $2.8 million in short-term investments, compared to working capital of $102.1 million at December 31, 2023. The $1.8 million decrease in working capital during the first three months of 2024 was primarily related to a decrease in inventory and prepaid expenses, partially offset by an increase in cash and cash equivalents and accounts receivable.

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We believe that our $18.7 million in cash, cash equivalents, short-term investments, and long-term investments, along with cash flows from operations and available borrowings of up to $25.0 million under our credit facility, will be sufficient to fund our cash requirements for at least the foreseeable future. We believe that our strong financial position would allow us to access equity or debt financing should that be necessary.

COVID-19 Impact

We believe the impact of COVID-19 on our business has largely diminished at this time; however, uncertainties continue, particularly around disruptions to the global economy, supply chains, and healthcare systems. Even with the public health actions that have been taken to date, the disease may pose future risks with the emergence of new variants. We will continue to monitor COVID-19 as well as resulting legislative and regulatory changes to manage our response and assess and seek to mitigate potential adverse impacts on our business. For additional discussion regarding COVID-19 and our related risks, see Part I, Item 1A, “Risk Factors” included in our 2023 Form 10-K.

Forward-Looking Statements

Statements in this Management’s Discussion and Analysis and elsewhere in this Quarterly Report on Form 10-Q that are forward-looking are based upon current expectations, and actual results or future events may differ materially. Therefore, the inclusion of such forward-looking information should not be regarded as a representation by us that our objectives or plans will be achieved. Such statements include, but are not limited to, our plans to hold certain investments for longer than 12 months, our belief that the impact of standards recently issued by the Financial Accounting Standards Board, or other standard-setting bodies, that are not yet effective, will not have a material impact on our consolidated financial statements upon adoption, and our ability to fund our cash requirements for the foreseeable future with our current assets, long-term investments, cash flow, and borrowings under our credit facility, and our access to equity and debt financing. Implementing control and procedure improvements will address the material weakness described below. Words such as “expects,” “believes,” “anticipates,” “intends,” “should,” “plans,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements contained herein involve numerous risks and uncertainties, and there are a number of factors that could cause actual results or future events to differ materially, including, but not limited to, the following: the risk that COVID-19 leads to further material delays and cancellations of, or reduced demand for, procedures in which our products are utilized; curtailed or delayed capital spending by hospitals and other healthcare providers; disruption to our supply chain; closures of our facilities; delays in training; delays in gathering clinical evidence; diversion of management and other resources to respond to COVID-19; the impact of global and regional economic and credit market conditions on healthcare spending; the risk that COVID-19 further disrupts local economies and causes economies in our key markets to enter prolonged recessions; changing economic, market and business conditions; acts of war or terrorism; the effects of governmental regulation; the impact of competition and new technologies; slower-than-anticipated introduction of new products or implementation of marketing strategies; implementation of new manufacturing processes or implementation of new information systems; our ability to protect our intellectual property; changes in the prices of raw materials; changes in product mix; intellectual property and product liability claims and product recalls; the ability to attract and retain qualified personnel; and the loss of, or any material reduction in sales to, any significant customers. In addition, assumptions relating to budgeting, marketing, product development and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic review which may cause us to alter our marketing, capital expenditures or other budgets, which in turn may affect our results of operations and financial condition. The forward-looking statements in this Quarterly Report on Form 10-Q are made as of the date hereof, and we do not undertake any obligation, and disclaim any duty, to supplement, update or revise such statements, whether as a result of subsequent events, changed expectations or otherwise, except as required by applicable law.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

For the quarter ended March 31, 2024, we did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in our 2023 Form 10-K.

Item 4. Controls and Procedures.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2024. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are not effective due to the material weakness described in our 2023 Form 10-K. There were no changes in our internal control over financial reporting for the quarter ended March 31, 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. However, as reported in our 2023 Form 10-K, we are planning, initiating, and implementing control and procedure improvements and anticipate that these improvements will address the material weakness.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We have no pending legal proceedings of the type described in Item 103 of Regulation S-K.

Item 1A. Risk Factors.

As of the date of this Report, there has been no material change in the risk factors described in our 2023 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

On May 21, 2015, our Board of Directors approved a stock repurchase program pursuant to which we can repurchase up to 250,000 shares of our common stock from time to time in open market or privately-negotiated transactions. Our stock repurchase program has no expiration date but may be terminated by our Board of Directors at any time. No repurchases of our stock were made during the three months ended March 31, 2024. As of March 31, 2024, we had repurchased 121,247 shares of our common stock authorized under the program and the number of shares still available for repurchase under the program was 128,753.

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Item 6. Exhibits.

Exhibit Index

Exhibit
Number	Description
31.1	Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer
31.2	Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer
32.1	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002
32.2	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Atrion Corporation
	(Registrant)
Date: May 10, 2024	By:	/s/ David A. Battat
		David A. Battat
		President and
		Chief Executive Officer
Date: May 10, 2024	By:	/s/ Cindy Ferguson
		Cindy Ferguson
		Vice President and
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

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