Utah Medical Products, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 25, 2022. Unless noted, dollar figures are in thousands. UTMD develops, manufactures and sells specialized medical devices for labor and delivery, neonatal care, gynecology/urology and blood-pressure monitoring, as well as OEM components and products. Its operations span the U.S., Ireland, the UK, Canada and Australia.
Financial performance and condition
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $49,054 | $42,178 | +16.3% |
| Gross profit / margin | $30,917 / 63.0% | $25,548 / 60.6% | +21.0%; margin +2.4 pts |
| Operating income / margin | $18,880 / 38.5% | $13,708 / 32.5% | +37.7% |
| Income before tax | $19,061 | $13,840 | +37.7% |
| Net income (GAAP) | $14,788 | $10,798 | +37.0% |
| Diluted EPS (GAAP) | $4.04 | $2.94 | +37.4% |
| Operating cash flow | $21,203 | $20,137 | +$1,066 |
Compared with pre-pandemic 2019, revenue was 4.6% higher, operating income 7.1% higher and GAAP net income 0.4% higher. Management’s supplemental, non-GAAP net income—excluding specified tax adjustments—was $15,178 in 2021, up 37.7% from 2020 and 7.3% from 2019; this is a company-defined measure, not a substitute for GAAP.
- Liquidity: Cash was $60,974, up from $51,590; working capital was $69,412, up from $58,471. Current assets totaled $73,158 and current liabilities $3,745.
- Debt and equity: No long-term debt; total liabilities were $8,498 and stockholders’ equity $107,138. The reported total-liabilities-to-assets ratio was 7%.
- Capital returns: Cash dividends paid totaled $11,465, including a $2.00-per-share special dividend; total dividends were $3.14 per share. No shares were repurchased in 2021.
- Quarterly context: Fourth-quarter revenue was $12,914 versus $12,010 in Q4 2020; net income was $4,131 versus $3,412; diluted EPS was $1.13 versus $0.94.
Material changes and operating drivers
- Sales recovered from pandemic-related procedure restrictions. Direct-to-end-user sales were still 6% below 2019, with Europe and Canada particularly lagging; OUS sales were 38% of total, versus 39% in 2020 and 41% in 2019.
- U.S. OEM sales grew 47.3% to $9,563, or 31% of U.S. domestic sales. The largest OEM customer accounted for 82% of domestic OEM sales; management said demand was strong but production capacity and hiring constrained shipments.
- Gross margin recovered toward 2019 levels as sales improved fixed-cost absorption, labor productivity improved and U.S. employee medical-plan costs fell. Pandemic-related costs, freight, raw-material inflation and labor pressures remained factors.
- Cash from operations increased, while receivables and inventory consumed more cash as activity rose. Capital expenditures were $552, compared with $860 in 2020.
- Currency translation and conversion affect reported results: management estimated favorable 2021 exchange-rate effects added $619 to consolidated sales. No separate currency hedging transactions were used.
Outlook, risks and unusual items
- 2022 outlook: Management estimated mid-single-digit revenue growth. It expected gross profit to rise at a low-single-digit rate if sales grew mid-single digits, with manufacturing costs expected to rise faster than revenue and gross margin to decline. As an illustration, management estimated 5% sales growth could yield 1% EBT growth.
- Management anticipated stronger OEM sales, including more than $700 of projected domestic OEM growth, and cited a large OUS distributor’s fixed 2022 blood-pressure-monitoring order $550 above 2021. It also cited a projected 3–4% stronger U.S. dollar as a potential offset to foreign-currency sales. Prices were raised about 5% across most products late in Q4 2021; Filshie products were excluded.
- Filshie Clip litigation: Seven clip-migration lawsuits had been filed in six states by year-end 2021. UTMD considered the claims without merit and did not expect a material financial impact, but stated defense costs would exceed historical levels. The company self-insures product liability risk and had a $96 reserve for litigation costs at year-end.
- Tax item: A UK tax-rate increase enacted in 2021 raised the deferred tax liability and reduced 2021 GAAP net income by $390 (about $0.11 per diluted share). The 2020 UK tax change reduced net income by $225; a 2019 U.S. tax-estimate adjustment increased it by $582.
- Other risks: COVID-19-related procedure restrictions or supply disruptions, inflation and labor availability, foreign-exchange movements, regulatory burdens, hospital purchasing restrictions and GPO access, distributor dependence, OEM customer concentration, product liability and competition. Goodwill was $14,098 and net identifiable intangible assets were $17,313; amortization remained significant.
- Auditors issued unqualified financial-statement opinions; the principal auditor’s opinion on consolidated figures included amounts audited by another firm for Femcare. Management concluded internal controls over financial reporting were effective, and reported no material control changes or weaknesses.
Important facts for investors to verify
- Whether OEM growth is sustained and capacity constraints ease, especially given the largest customer’s 82% share of domestic OEM sales.
- Developments, defense costs, reserve adequacy and any financial exposure related to the seven Filshie Clip migration lawsuits.
- Whether 2022 revenue, gross-profit and EBT expectations were achieved amid cost inflation, hiring constraints and currency movements.
- Recovery in OUS direct sales, particularly in Europe and Canada, and the effect of exchange rates on reported revenue and margins.
- The assumptions and remaining amortization schedule for acquisition-related intangible assets, goodwill impairment assessments and deferred taxes.