Retractable Technologies, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The company designs, manufactures, and markets safety syringes and other medical products. Figures below are unaudited; dollar amounts are rounded to millions unless otherwise stated.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $36.4 | $27.1 | $128.9 | $49.9 |
| Gross profit / margin | $13.4 / 36.8% | $13.8 / 51.0% | $61.0 / 47.3% | $21.0 / 42.2% |
| Operating income / margin | $8.0 / 21.9% | $10.3 / 38.2% | $44.1 / 34.2% | $11.8 / 23.6% |
| Net income | $6.5 | $8.6 | $35.1 | $12.7 |
| EPS, basic / diluted | $0.19 / $0.19 | $0.33 / $0.33 | $1.03 / $1.02 | $0.45 / $0.45 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $18.1 | $8.8 |
- Q3 sales rose 34.2%, but gross profit declined 3.1% and operating income fell 23.0%. Management attributed margin pressure to higher freight and raw-material costs; cost of manufactured product rose 78.4%.
- Nine-month sales increased 158.5%. Growth was driven chiefly by U.S. government syringe orders, higher average pricing, and increased volumes. Gross margin improved for the nine-month period, despite significant cost inflation.
- Nine-month net income included a $1.4 million gain from forgiveness of the PPP loan. Comparability is also affected by the 2020 release of a deferred-tax valuation allowance and a 2020 deemed contribution on extinguishment of preferred stock. The filing does not provide an adjusted earnings measure.
Liquidity, balance sheet and cash flow
- At September 30, cash and cash equivalents were $16.4 million; marketable debt and equity securities were $13.6 million. Current assets were $88.2 million against current liabilities of $36.2 million, or approximately $52.0 million of working capital.
- Total assets were $178.0 million and stockholders’ equity was $79.6 million. Total reported debt was approximately $2.2 million, including current maturities; interest expense for nine months was $173,000.
- Other long-term liabilities were $60.3 million, principally $59.3 million of deferred TIA reimbursements. These government reimbursements are recorded as a liability and amortized against depreciation over the funded assets’ useful lives; they are not presented as conventional borrowings.
- Nine-month investing cash outflow was $51.2 million, primarily $46.5 million of property, plant and equipment purchases. Financing cash inflow was $31.9 million, chiefly TIA proceeds. Cash declined $1.2 million from year-end to $16.4 million.
- Receivables increased to $30.0 million from $21.1 million and inventories increased to $18.7 million from $10.2 million. Management said inventory growth reflected production materials, finished goods, and goods in transit.
Material developments, outlook and risks
- U.S. government sales were $83.6 million, or 64.8% of nine-month revenue; one customer, the Department of Health and Human Services, accounted for this amount. Management expected the government to remain a significant customer through at least March 2022. A prior delivery order runs through March 2022; a 2021 contract extension had received commitments for option periods through December 2021. The filing gives contract values and periods but no broader company revenue or earnings guidance.
- The company’s $81.0 million TIA funds domestic production expansion. By September 30, it had negotiated approximately $44.6 million of equipment-related contracts and issued an additional $16.7 million in purchase orders following a May amendment. The amendment requires at least a 50% increase in existing domestic manufacturing capacity and further expansion by January 31, 2022. As of November 5, the company reported approximately $54.8 million received for fixed-asset down payments and about $61.4 million in negotiated equipment contracts under the TIA and amendment.
- Management warned that government orders and TIA activity are pandemic-related and may not indicate future operations. If replacement government or commercial demand does not materialize, expanded capacity could be underused.
- Supply-chain exposure remains material: Chinese manufacturers supplied approximately 90.9% of products in the first nine months of 2021. Management cited freight and raw-material inflation, sourcing and logistics challenges, and potential tariffs. A significant portion of quarterly sales also depended on two customers.
- The company repurchased 244,821 shares for $2.84 million through September 30 under a plan authorizing up to $10 million; subsequent purchases brought the total to 362,854 shares for approximately $4.0 million as of November 10.
- The company authorized approximately $5.1 million of preferred dividends, with about $1.4 million still owed to former shareholders it had not yet located as of November 5. Series III preferred dividends were $20,061 in arrears at quarter-end; preferred-stock terms may restrict common-stock repurchases or dividends.
- A lawsuit against former legal counsel alleges malpractice, negligence, and breach of fiduciary duties relating to prior litigation. The filing describes the case but does not quantify a potential recovery or loss. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Timing, exercise, and revenue contribution of remaining U.S. government contract options, and demand after the pandemic-related orders end.
- Progress, cost, reimbursement timing, and production ramp for the TIA-funded expansion, including whether the January 2022 amendment deadline is met.
- Whether margins recover as freight, raw-material, and manufacturing costs change, and the cash conversion of rising receivables and inventory.
- Customer and Chinese-supplier concentration, contingency plans for disrupted supply, and exposure to tariffs and logistics constraints.
- Remaining stock-repurchase authorization, preferred-dividend arrears and restrictions, and developments or financial effects of the pending litigation.