Retractable Technologies, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. The company designs, manufactures, and markets safety syringes and other safety medical products. Financial statements are unaudited.
Financial results and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net sales | $6.72 million | $6.88 million | $12.89 million | $12.92 million |
| Gross profit (margin) | $2.01 million (29.9%) | $2.18 million (31.7%) | $4.40 million (34.2%) | $3.90 million (30.2%) |
| Operating income (loss) | $(1.84) million | $(1.34) million | $(2.73) million | $(3.33) million |
| Net income (loss) | $5.84 million | $(1.39) million | $4.90 million | $(3.43) million |
| Operating cash flow | Not provided separately | Not provided separately | $(1.74) million | $(3.73) million |
Q2 earnings included $7.72 million of previously received BD patent-litigation proceeds recognized after the case and related appeals concluded. Excluding that one-time item, the company remained loss-making from operations; the filing does not provide an adjusted net-income figure. Basic and diluted EPS were $0.20 and $0.19 for Q2, and $0.16 and $0.15 for the six months, respectively.
At June 30, cash and cash equivalents were $19.72 million, restricted cash was $0.60 million, and working capital was $23.7 million. Current assets were $30.67 million and current liabilities $6.94 million. Long-term debt, including current maturities, totaled approximately $3.50 million. Cash declined $2.41 million from year-end 2014; operating activities used $1.74 million and investing activities used $0.69 million in the first half. Total assets were $42.05 million and stockholders’ equity $31.76 million.
Material changes versus comparable periods
- Q2 sales decreased 2.3% year over year. Domestic revenue rose 5.4%, mainly from higher average prices despite 4.5% lower domestic unit sales; international revenue fell 25.6%. Total units declined 9.9%.
- First-half sales were nearly unchanged, while domestic revenue increased 11.5% and international revenue fell 42.2%. Total unit sales declined 6.6%.
- Q2 gross profit fell 7.9%, reflecting lower revenue; first-half gross profit increased 12.9%, primarily due to higher average selling prices and lower manufactured-product costs.
- Operating expenses rose 9.2% in Q2, but declined 1.3% for the first half. Q2 operating loss widened; the first-half operating loss narrowed.
- The $7.72 million litigation amount had been carried as a liability. Its recognition in Q2 reduced current liabilities and increased equity; it was not a Q2 cash receipt.
Outlook, risks, contingencies, and unusual items
- Management provided no specific financial guidance. It said cash reserves were sufficient for current needs, did not intend to raise equity, and expected to rely on operations, reserves, and debt financing when available; access to additional loans is uncertain. Reaching routine break-even results depends on better hospital-market access.
- A separate BD antitrust and false-advertising case resulted in an amended judgment of approximately $352 million plus costs and injunctive relief. The company had not received the award, BD appealed to the Fifth Circuit, and the company’s financial statements do not recognize the judgment as an asset or income.
- The company depends on its primary Chinese manufacturer for about 74.9% of first-half VanishPoint finished products. Loss of that supplier could require alternative sourcing and a domestic-production ramp-up, potentially raising costs. Two customers represented 43.9% of first-half sales.
- Management cited difficult hospital-market access, competition, possible fluctuations in demand and international orders, manufacturing and material costs, and the ability to maintain liquidity and supplier relationships as risks. The medical-device excise tax was expected to cost about $600,000 in 2015, net of anticipated rebate-related refunds.
- Preferred-stock dividend arrears totaled $13.08 million at June 30, 2015, including $8.24 million for Series IV and $3.82 million for Series III. The filing also reports $56,363 of dividends declared and payable after quarter-end.
- EasyPoint production equipment was being installed, tested, and validated after delivery of assembly equipment in July 2015. Management noted that syringe sales have historically increased during flu season. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Progress and outcome of BD’s appeal of the approximately $352 million judgment, including whether any recovery becomes collectible or recognized.
- Cash consumption, operating performance excluding the one-time $7.72 million litigation recognition, and the ability to reach operating break-even.
- Resolution of preferred-dividend arrears and any constraints associated with the preferred-stock terms.
- Reliability of the primary Chinese supplier, customer concentration, and the cost and capacity implications of shifting production.
- EasyPoint commercialization and market access, and the actual net cost of the medical-device excise tax and related refunds.