Utah Medical Products, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. UTMD manufactures and markets specialty medical devices. Amounts below are in USD thousands except per-share data and percentages.
Financial results and position
| Metric | Q1 2021 | Q1 2020 / prior date | Change |
|---|---|---|---|
| Net sales | $10,964 | $10,902 | +0.6% |
| Gross profit / margin | $6,947 / 63.4% | $6,836 / 62.7% | Profit +1.6% |
| Operating income / margin | $3,888 / 35.5% | $3,863 / 35.4% | +0.6% |
| Income before taxes | $3,898 | $3,988 | -2.3% |
| Net income / margin | $3,024 / 27.6% | $3,140 / 28.8% | -3.7% |
| Diluted EPS | $0.83 | $0.84 | -1.9% |
| Operating cash flow | $5,533 | $5,674 | -2.5% |
| Cash and investments | $56,033 | $51,590 at Dec. 31, 2020 | +$4,443 |
Gross margin improved with better direct-labor productivity despite increased material, freight, manufacturing-overhead and regulatory-compliance costs. Operating expenses were $3,059, up from $2,973, including $1,655 of amortization related to the Femcare and Filshie distribution-rights intangibles. Adjusted EBITDA, a non-GAAP measure defined by the company, was $5,776 versus $5,772, or 52.7% versus 52.9% of sales.
UTMD reported no debt. At March 31, 2021, total assets were $114,388, total liabilities $9,505, and stockholders’ equity $104,883. Working capital was $62,048; the current ratio was 14.6, down from 16.4 at year-end 2020. The company paid $1,038 in dividends and spent $10 on capital expenditures; cash increased to $56,033.
Changes and operating drivers
- U.S. domestic sales rose 5% to $6,783; outside-U.S. sales fell 6% to $4,181. At constant currency, worldwide sales declined 1.7% and outside-U.S. sales declined 11.9%. Favorable currency translation added $251 to reported sales.
- U.S. OEM sales increased 38% to $1,904, while direct Filshie device sales declined 12%, reflecting pandemic-related disruption and reduced elective procedures. Outside-U.S. demand, particularly in Europe, remained weak.
- Lower non-operating income—primarily less interest income and an unfavorable foreign-currency remeasurement comparison—reduced pretax income despite higher operating income. The estimated tax rate rose to 22.4% from 21.3%, partly due to the geographic mix of taxable income.
- Operating cash flow was slightly lower year over year. Q1 2020 included $6,426 of share repurchases; UTMD made no repurchases in Q1 2021. Diluted weighted-average shares declined to 3.655 million from 3.724 million, supporting EPS relative to the net-income decline.
Source inconsistency: The income statement reports operating income of $3,888, while the MD&A reports $3,887; the filing does not reconcile the difference.
Outlook, risks and other matters
Management expected Q2 2021 revenue could be 25% above Q2 2020 and indicated this might produce approximately 8% higher sales for full-year 2021. These estimates were explicitly uncertain and depended on the resumption of hospital procedures and patients’ willingness to return. Management expected substantially better year-over-year comparisons during the remaining nine months because pandemic effects had weighed heavily on 2020 results.
Management cited plans to integrate multinational operations, market the Filshie Clip System, develop products, pursue profitable operations, pay dividends, repurchase shares when considered undervalued, and consider accretive acquisitions. It also identified planned investment in production capacity, including a testing machine for Ireland and additional capacity for an OEM customer. Cash could be used for strategic investment, acquisitions, dividends or repurchases.
Key disclosed risks include pandemic-related restrictions and supply-chain or staffing disruptions; regulatory burdens and delays; foreign-exchange fluctuations; tariffs and trade restrictions; dependence on distributors and OEM customers; competition and hospital purchasing constraints; product-liability exposure; and retention of key employees. Management reported no litigation it believed could materially affect results, no material control changes, and effective disclosure controls as of March 31, 2021. No material subsequent events requiring disclosure were identified.
Important facts for investors to verify
- Whether hospital procedure volumes and Filshie demand recovered as assumed in management’s Q2 and full-year sales outlook.
- Whether constant-currency sales trends, particularly outside the U.S., improved and how currency movements affected reported results and costs.
- Whether higher OEM production can be supported by available labor and capacity without weakening margins or displacing higher-value products.
- How the company allocates its substantial cash balance among capital investment, acquisitions, dividends and any future share repurchases.
- The reconciliation of the $1 thousand operating-income difference in the filing’s financial statements and MD&A.