Retractable Technologies, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The unaudited results cover a manufacturer and marketer of safety syringes and other medical products.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior balance |
|---|---|---|
| Net sales | $50.1 million | $11.2 million |
| Gross profit / gross margin | $28.0 million / 55.9% | $3.5 million / 31.5% |
| Operating income / margin | $23.4 million / 46.8% | $0.5 million / 4.3% |
| Net income | $18.0 million | $0.3 million |
| Diluted EPS | $0.52 | $0.00 |
| Cash from operating activities | $16.6 million | $2.1 million |
- Revenue rose approximately 347% year over year; overall unit sales increased 282.6%. Sales to the U.S. government were $37.8 million, or 75.5% of revenue.
- Cash and cash equivalents were $30.9 million at quarter-end, versus $17.6 million at December 31, 2020. Investments in debt and equity securities were $13.8 million, up from $8.1 million.
- Current assets were $88.8 million and current liabilities $36.0 million, implying working capital of approximately $52.8 million. Total assets were $138.4 million and stockholders’ equity $67.8 million.
- Total long-term debt, including current maturities, was approximately $3.7 million. Other long-term liabilities were $32.4 million, principally the deferred liability for government reimbursements under the Technology Investment Agreement (TIA), not conventional debt.
- Investing cash outflow was $17.2 million, principally $12.6 million of property, plant and equipment purchases. Financing cash inflow was $14.0 million, including $15.2 million of TIA proceeds.
Material changes and unusual items
- The revenue and profit increase was principally driven by U.S. government orders for COVID-19 vaccination syringes. Domestic unit sales rose 460.8%; international revenue decreased approximately $1.5 million.
- Interest and other income was $1.2 million, compared with a $0.1 million loss a year earlier, mainly reflecting unrealized investment gains of approximately $1.1 million.
- Operating expenses increased 50%, mainly due to higher staffing, employee-related and consulting costs associated with larger orders and TIA expansion. The quarter included approximately $650,000 of executive bonuses and retroactive salary increases.
- Property, plant and equipment increased to $43.2 million from $30.8 million as expansion proceeded. The company reported approximately $50.6 million of negotiated equipment and related contracts as of March 31.
Outlook, risks and contingencies
- No formal earnings guidance was provided. The company said government-related orders and TIA activity are specific to the COVID-19 pandemic and may not represent future operations; it warned that reduced future demand could leave significant excess production capacity.
- A February 2021 HHS contract had a $54.2 million five-month base-period price, including freight reimbursement, and options for up to seven additional months. In April, HHS gave preliminary notice of intent to exercise at least the first two monthly options, associated with approximately $23.5 million of purchase price including freight. These were subsequent-period developments, not Q1 sales.
- The $53.7 million TIA funds qualifying domestic production expansion. By May 4, the company had received approximately $25.9 million in down payments. A new warehouse estimated at $5.8 million is the company’s responsibility; construction was expected to finish in Q2 2021.
- On May 13, 2021, the company was informed that its $1.363 million PPP loan had been fully forgiven. At March 31, it remained reported as debt.
- Customer concentration is material: one significant customer accounted for 75.5% of Q1 sales, and management expected the U.S. government to remain significant through at least September 2021. The company also sourced approximately 90.3% of products from Chinese manufacturers in the quarter, creating supplier and continuity exposure.
- The company cited risks including COVID-19 impacts, ramping domestic production, supplier arrangements, tariffs, costs, patent protection and competition. A lawsuit against former legal counsel over prior representation remained pending; an appellate court affirmed denial of the defendants’ motion to dismiss on April 20, 2021. The filing does not quantify any potential recovery.
- Management reported disclosure controls were effective as of March 31, 2021 and no material change in internal control over financial reporting.
Investor verification priorities
- Confirm subsequent HHS option exercises, fulfillment, revenue recognition and freight economics; distinguish contracted options from completed orders.
- Track customer concentration and demand after pandemic-related government orders, including utilization of the expanded capacity.
- Verify TIA reimbursements, qualifying expenditures, project completion, and the company-funded warehouse costs and cash requirements.
- Review investment portfolio concentration and valuation: one transportation-sector stock represented approximately 34% of invested balances at March 31.
- Monitor Chinese supplier dependence, executive compensation and option grants, preferred-stock dividend arrears, and the status and outcome of the legal proceeding.