Retractable Technologies, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The company manufactures and markets safety syringes and other medical products. It operates as one reporting segment. Its VanishPoint syringe line generated 93.6% of 2021 sales.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $188.4 million | $81.9 million |
| Gross profit / gross margin | $95.4 million / 50.6% | $37.0 million / 45.2% |
| Operating income | $72.6 million | $24.1 million |
| Net income | $56.1 million | $24.2 million |
| Diluted earnings per share | $1.63 | $0.80 |
| Cash from operations | $32.8 million | $19.0 million |
- Revenue rose 130.1% year over year; total unit sales increased 116.9%. Fourth-quarter 2021 revenue was $59.4 million, up 85.8% year over year, with units sold up 94.7%.
- Operating expenses increased 75.9% to $22.8 million, primarily reflecting higher staffing and employee costs, consulting, and expansion activity. 2021 included $3.7 million of share-based compensation.
- Cash and cash equivalents were $29.2 million at year-end; investments in debt and equity securities were $13.3 million. Current assets were $104.5 million and current liabilities $35.3 million.
- Net cash used in investing activities was $63.0 million, including $58.4 million for property, plant, and equipment. Net cash from financing activities was $41.8 million, primarily reflecting TIA proceeds.
- Year-end debt was $2.1 million, including $0.3 million current debt. The separate $1.4 million PPP loan was forgiven in May 2021. Other long-term liabilities included $69.0 million related to the TIA.
Material changes and business drivers
- U.S. government sales were $113.7 million, or 60.3% of revenue, versus $31.6 million in 2020. Domestic revenue increased 127.0%; international revenue increased 158.5%.
- The company reported that higher overall volume and freight reimbursements contributed to improved annual gross margin. However, rising freight costs, particularly in the second half, and higher costs for petroleum-based plastics pressured margins.
- Approximately 92% of products were sourced from Chinese manufacturers in 2021. The Little Elm facility produced approximately 8% of units manufactured that year.
- The company repurchased 528,169 common shares for $5.3 million during 2021 under a plan authorizing up to $10 million. It paid $5.1 million in preferred dividends, including arrears and amounts owed to former holders.
Outlook, risks, and unusual items
- Management stated that significant future U.S. government orders were uncertain and that no orders beyond the committed 2021 option periods had been received. Without new government orders or replacement demand, management expects revenue to be materially affected; expanded capacity could be underutilized.
- The amended TIA provides approximately $81.0 million in government funding for domestic manufacturing expansion. The amended completion date is August 29, 2022. Management reported about $67.2 million received by March 8, 2022; TIA funding is recorded as a liability and recognized over the related assets’ useful lives.
- Management said it believed liquidity was adequate for short- and foreseeable long-term needs. It also identified supply-chain and freight disruption, inflation and input costs, reliance on China, customer concentration, patent protection, competition, and scaling production as material risks.
- Net income included a $1.4 million gain from PPP loan forgiveness and $0.4 million of TIA-related other income. The effective tax rate increased to 25.2% from 7.1% in 2020; 2021 income tax provision was $18.9 million.
- The company is pursuing litigation against former legal counsel; a trial was set for January 2023. The filing does not quantify any expected recovery.
- CEO Thomas J. Shaw controlled or had voting or investment power over 46.9% of common stock and receives a 5% royalty on gross sales of licensed products. The filing describes related control and potential conflict-of-interest risks.
Key facts for investors to verify
- Whether government orders or other customer demand replace the pandemic-related revenue that drove 2021 growth.
- Actual utilization, completion costs, funding, and returns from the expanded U.S. manufacturing capacity.
- Whether freight, raw-material, labor, and other cost pressures affect margins after 2021.
- Customer and supplier concentration, particularly the 60.3% government revenue share and 92% China-sourced product share.
- Rebate estimates, including the $6.2 million estimated contractual allowance, which the auditor identified as a critical audit matter.
- The filing reports an unmodified audit opinion and management’s conclusion that disclosure controls and internal control over financial reporting were effective; the auditor was not engaged to audit internal control.