United-Guardian, Inc. — Q2 2021 Form 10-Q
Business and period: The company develops, manufactures and markets cosmetic ingredients, pharmaceuticals, non-pharmaceutical medical products and specialty industrial products. This unaudited report covers the three and six months ended June 30, 2021; comparisons are with the same periods in 2020.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $3.66 million | $2.95 million | $7.09 million | $6.28 million |
| Income from operations | $1.52 million | $1.06 million | $3.04 million | $2.37 million |
| Net income | $1.34 million | $1.19 million | $2.53 million | $1.98 million |
| Diluted EPS | $0.29 | $0.26 | $0.55 | $0.43 |
| Operating cash flow | Not separately reported | Not separately reported | $2.62 million | $3.18 million |
- Q2 sales increased 24%; first-half sales increased 13%. Gross margin was approximately 59% in Q2 and 60% for the half, versus 57% and 58%, respectively, in 2020. Operating margin was approximately 41% in Q2 and 43% for the half, compared with 36% and 38%.
- Q2 net income growth occurred despite a substantially smaller securities gain than in Q2 2020, when markets rebounded sharply. First-half securities gains were $65,527, including $112,180 realized gains on securities sold.
- First-half operating cash flow declined about 18%, primarily because accounts receivable increased. Investing activities used $260,000; financing activities used $2.20 million, mainly for dividends.
Financial position and changes
- At June 30, 2021, cash and cash equivalents were $744,461 and marketable securities were $7.88 million. Working capital was $10.33 million, up $501,174 from year-end; the current ratio was 8.1:1.
- No debt is reported on the balance sheet. Total liabilities were $1.75 million, including $1.45 million of current liabilities and $301,138 of deferred income taxes. Total assets were $12.43 million.
- Cosmetic ingredient sales rose 68% in Q2 and 24% for the first half, led by increased shipments through marketing partner Ashland Specialty Ingredients (ASI), including resumed shipments to China. Medical product sales were down 1% in Q2 but up 6% for the half. Pharmaceutical net sales were broadly steady, while gross pharmaceutical sales declined.
- Dividend payments were $2.20 million in the first half, versus $1.93 million in 2020; the per-share amount increased from $0.42 to $0.48. Shares outstanding remained 4,594,319.
Outlook, commentary and risks
- Management said operating expenses were expected to remain relatively consistent for the rest of 2021, anticipated no significant capital expenditures for the remainder of the year, and expected a 21% tax rate. It believes working capital is sufficient for at least the next 12 months.
- COVID-19 effects on cosmetic ingredient demand had eased, but management said demand remained below pre-pandemic levels in some markets and future effects could not be reliably projected. Medical-product impacts also eased; pharmaceutical sales were not materially affected by the pandemic.
- The company reported raw-material price increases and may not be able to pass them through to customers. It expected to maintain production and obtain materials, but noted this could change if global pandemic conditions worsened.
- The company ended participation in the Medicaid Drug Rebate and 340B programs effective December 31, 2020. Some Renacidin sales were lost, but the elimination of rebate costs more than offset that loss in net income, according to management.
- Customer concentration is significant: one cosmetic marketing partner and three pharmaceutical distributors accounted for 75% of Q2 sales and 73% of receivables at quarter-end. Management reported effective disclosure controls, no material changes in internal control over financial reporting, and no legal proceedings.
Investor verification points
- Track whether cosmetic ingredient growth, particularly shipments through ASI to China and other foreign markets, persists as pandemic conditions evolve.
- Verify the ongoing effect of ending Medicaid rebate participation on Renacidin gross sales, net sales and profitability.
- Monitor customer and distributor concentration, receivables growth, and the company’s ability to collect from major counterparties.
- Assess whether raw-material inflation can be passed through without pressuring margins, and whether operating cash flow recovers.
- Review marketable-securities valuation changes and dividend sustainability alongside cash generation; the filing provides no quantified earnings or sales guidance.