Retractable Technologies, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited results; amounts are U.S. dollars. The company designs, manufactures and markets safety syringes and other medical products. VanishPoint syringes represented 85.5% of first-half sales.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $7.97 million | $14.34 million | $18.97 million | $59.08 million |
| Gross profit (margin) | $0.38 million (4.7%) | $3.65 million (25.4%) | $3.25 million (17.1%) | $19.21 million (32.5%) |
| Operating income (loss) | ($5.03 million) | ($2.06 million) | ($7.77 million) | $7.66 million |
| Net income (loss) | ($3.87 million) | ($3.64 million) | ($2.88 million) | $3.97 million |
| Net income (loss) per diluted share | ($0.13) | ($0.11) | ($0.10) | $0.12 |
| Cash flow from operations | Not provided by quarter | ($6.93 million) | $12.95 million |
Financial position and liquidity
- At June 30, cash and cash equivalents were $4.14 million, compared with $19.72 million at year-end 2022. Current assets were $82.55 million and current liabilities $8.87 million.
- Investments in debt and equity securities were $39.77 million, up from $29.66 million at year-end; management says these are readily marketable and held for possible operating needs. The company reported $9.20 million in income taxes receivable; an approximately $8 million refund was received July 13 and is expected to increase third-quarter cash.
- Total liabilities were $83.22 million. Long-term debt, including current maturities, was approximately $1.68 million. Other long-term liabilities of $72.97 million principally represent deferred TIA funding, not reported as debt.
- For the first half, investing activities used $9.86 million, including $43.87 million of securities purchases partly offset by $34.57 million of sale proceeds. Cash decreased by $15.58 million overall.
Changes, outlook and risks
- Sales fell 44.4% year over year in Q2 and 67.9% in the first half. Management attributed the first-half decline primarily to lower demand, fewer vaccination-related international sales, and the absence of U.S. government sales; those government sales were $15.73 million in the first half of 2022 and nil in 2023.
- Operating performance weakened: first-half operating income of $7.66 million in 2022 became a $7.77 million loss in 2023. Management cited lower revenue and higher per-unit costs at reduced production levels. The first-half sales and marketing expense rose about 39%, including travel, trade shows and sales staffing, as the company sought to support future revenue.
- Investment results were volatile. Q2 included a $6.25 million unrealized securities loss and a $4.83 million realized gain on securities sales; first-half figures were a $4.76 million unrealized loss and a $5.57 million realized gain. The first-half net loss also includes $3.03 million of TIA-related income.
- The company says it has adequate resources for short-term needs for at least 12 months and foreseeable long-term needs, including access to investments if required. It provided no quantified revenue or earnings guidance. Future demand, including flu-season and COVID-19 booster demand, is uncertain; management noted customer inventory, vaccine fatigue and hesitancy as factors.
- Risks include customer and product concentration, price/cost and production-volume pressures, tariffs and foreign-trade exposure, and reliance on Chinese manufacturers, which supplied approximately 89% of products in the first half and 84% in Q2. The company says alternative sourcing or increased domestic production may be needed if Chinese supply is disrupted.
- The company has a pending legal-malpractice and negligence case against Locke Lord LLP and Roy Hardin; a jury trial was set for October 30, 2023. The filing does not quantify any potential recovery. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether post-pandemic customer inventory drawdowns and the absence of government orders continue to constrain sales, and the timing of any recovery in international demand.
- Whether gross margins can improve as volumes and production mix change, and whether price increases can offset raw-material, tariff and other cost pressures.
- Cash needs and the liquidity available from investments, including the timing and use of the approximately $8 million tax refund received after quarter-end.
- Investment portfolio performance and exposure to market-value changes, given the material unrealized losses and gains reported.
- Dependence on Chinese manufacturing, customer concentration, and the status and potential outcome of the pending litigation.