Utah Medical Products, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Financial statement amounts are in thousands of U.S. dollars, except per-share data. UTMD manufactures and markets specialty medical devices.
Financial results
| Metric | Q2 2022 | Q2 2021 | 1H 2022 | 1H 2021 |
|---|---|---|---|---|
| Net sales | $13,428 | $12,604 | $25,752 | $23,568 |
| Gross profit | $8,151 | $7,785 | $15,683 | $14,732 |
| Operating income | $5,057 | $4,765 | $9,579 | $8,652 |
| Net income, GAAP | $4,103 | $3,426 | $7,638 | $6,450 |
| Diluted EPS, GAAP | $1.12 | $0.94 | $2.09 | $1.76 |
- Sales grew 6.5% in Q2 and 9.3% in 1H; reported sales were negatively affected by foreign exchange by $456 and $608, respectively. At constant currency, sales growth was 10.2% in Q2 and 11.8% in 1H.
- Gross margin declined to 60.7% in Q2 from 61.8%, and to 60.9% in 1H from 62.5%, as inflation raised labor, raw-material and inbound freight costs. Operating margin was 37.7% in Q2 versus 37.8%, and 37.2% in 1H versus 36.7%.
- GAAP net income growth was 19.7% in Q2 and 18.4% in 1H, partly reflecting a $390 deferred-tax charge recorded in Q2 2021 after the UK enacted a higher future corporate tax rate. Excluding that prior-year item, management’s non-GAAP comparison showed net income growth of 7.5% in Q2 and 11.7% in 1H, and diluted EPS growth of 7.7% and 11.6%, respectively.
- Q2 sales outside the U.S. increased 22.2% in reported dollars (32.2% at constant currency); domestic sales declined 2.4%. In 1H, domestic sales rose 6.8% and outside-U.S. sales rose 13.4% (20.4% at constant currency). Filshie Clip System sales in the U.S. declined, while most other product categories increased.
- Adjusted EBITDA, a company-defined non-GAAP measure, was $7,005 in Q2, up 4.6%, and $13,376 in 1H, up 7.3%. EBITDA margin was 52.2% and 51.9%, respectively, down from 53.1% and 52.9% a year earlier.
Cash, liquidity and capital
- Cash and investments were $66.2 million at June 30, 2022, up from $61.0 million at year-end 2021. Operating cash flow was $9.9 million in 1H, compared with $10.2 million a year earlier. The decrease reflected working-capital movements, including higher inventories and lower accrued expenses.
- Capital expenditures were $459,000 in 1H, including $450,000 for property and equipment, primarily to expand capacity for the company’s largest OEM customer. UTMD paid $1.06 million in dividends and repurchased 30,105 shares for $2.50 million during Q2.
- The company reported no debt. Total liabilities were $8.7 million and total stockholders’ equity was $107.5 million at June 30. Working capital was $74.5 million and the current ratio was 17.8, down from 19.5 at year-end.
Outlook, commentary and risks
- Management said it remained focused on expanding manufacturing capacity, integrating multinational operations, developing products, supporting Filshie, and returning excess cash through dividends and repurchases while considering acquisitions.
- As a scenario, management estimated that if 2H revenue matched 1H revenue, full-year sales would be up about 5% versus 2021. This was not presented as formal guidance. Management cited assembly-labor constraints, worldwide supply-chain disruption, inflation and the possibility that further U.S.-dollar strength would weigh on foreign sales.
- The company faces ongoing litigation related to the safety of the Filshie Clip System; it states that the product remains FDA-approved as safe and effective. Litigation expense was $165,000 in Q2 and $226,000 in 1H, versus none in the comparable 2021 periods.
- Other disclosed risks include regulatory burden and delays, product-liability exposure, healthcare purchasing and reimbursement practices, reliance on distributors, key-employee retention, foreign-exchange movements, trade restrictions and possible continuing pandemic-related disruption.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the first half. The filing reported no other subsequent events requiring disclosure.
Important facts for investors to verify
- Whether labor availability, input-cost inflation and supply constraints continue to limit production or further pressure gross margins.
- Whether reported sales trends persist by geography and product, particularly the decline in U.S. Filshie sales and the strength of outside-U.S. sales.
- Potential financial and operational effects of the Filshie-related litigation; the filing does not quantify a possible loss or outcome.
- How exchange rates affect foreign-currency revenue, subsidiary expenses and reported results.
- Whether the conditional approximately 5% full-year sales-growth scenario is achievable, and the effects of any pricing changes or further share repurchases.