Retractable Technologies, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. The company designs, manufactures, and markets safety syringes and other medical products; VanishPoint syringes represented 85.0% of sales in the first nine months.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net sales | $11.64 million | $9.86 million | $29.17 million | $25.01 million |
| Gross profit / margin | $3.77 million / 32.4% | $2.80 million / 28.4% | $9.19 million / 31.5% | $7.72 million / 30.9% |
| Operating income (loss) | $978,424 | ($60,226) | $1.13 million | ($1.16 million) |
| Net income (loss) | $1.02 million | ($63,417) | $1.29 million | ($1.19 million) |
| Income (loss) applicable to common shareholders | $848,978 | ($239,666) | $759,803 | ($1.72 million) |
| Basic and diluted EPS | $0.03 | ($0.01) | $0.02 | ($0.05) |
- Cash flow: Operating activities provided $1.48 million in the first nine months, versus $439,918 used in the prior-year period. Capital spending was $487,256. Net cash used in investing was $5.09 million, largely reflecting purchases of investments; financing used $478,975, including debt repayments and preferred dividends.
- Liquidity: September 30 cash was $5.55 million, down from $9.65 million at year-end 2018. Current investments were $7.73 million; working capital was approximately $18.3 million and the current ratio approximately 3.1. Management said it considered reserves sufficient, but additional borrowing is uncertain.
- Debt: Total long-term debt, including current maturities, was approximately $2.73 million, down from $3.05 million at December 31, 2018.
- Balance sheet: Total assets were $38.03 million and stockholders’ equity $26.74 million at September 30, 2019.
Changes and management commentary
- Q3 sales rose about 18.0% year over year; nine-month sales rose about 16.6%. Management attributed growth primarily to higher unit volumes, particularly internationally. Overall unit sales increased 15.8% in Q3 and 18.9% for the nine-month period.
- Q3 international revenue and unit sales increased 133.1% and 152.3%, respectively; domestic unit sales fell 6.7%, which management attributed principally to flu-season demand shifting later. For the nine months, international revenue and unit sales increased 78.5% and 76.3%.
- Gross profit improved with sales growth. Nine-month operating expenses fell 9.3%, reflecting cost reductions initiated in late 2018, including lower payroll and legal expenses. Management reported operating income for both 2019 periods versus operating losses in 2018.
- Interest and other income increased, including unrealized investment gains and accrued interest. Nine-month investment gains included $129,728 unrealized and $7,925 realized.
- No formal earnings guidance was provided. Management cited historically higher unit sales during flu season, but noted limited predictability of international order timing and continued difficulty gaining hospital-market access. No material Q3 capital expenditure commitments were reported.
Risks, contingencies, and unusual items
- Chinese manufacturers supplied approximately 82.1% of products in the first nine months of 2019. Disruption could require alternate suppliers or expanded U.S. production, potentially increasing costs. Tariffs, supplier costs, transportation, and raw-material availability may also pressure margins.
- Three significant customers generated 43.3% of nine-month sales. VanishPoint syringes accounted for 85.0% of sales, creating product concentration.
- Preferred-stock dividend arrearages at September 30 totaled $12.129 million for Series III, IV, and V. Series I and II had no arrears. The filing notes restrictions on dividends and certain transactions involving junior-ranking stock when preferred dividends are in arrears.
- In November 2019, the company filed a lawsuit against former legal counsel alleging breach of fiduciary duty, malpractice, and negligence in connection with prior litigation against BD; it seeks damages and other relief. The filing gives no estimate of potential recovery.
- The company corrected an investment-classification error, deeming it immaterial to previously filed statements, and revised the December 2018 balance-sheet presentation. The revision reclassified $2.99 million of investments and increased reported current assets by $1.99 million; there was no impact on 2018 operations.
- The medical-device excise tax moratorium was expected to end January 1, 2020. Management’s forward-looking risks also include market access, liquidity, patent protection, production capacity, and competition.
Investor verification priorities
- Track whether international sales growth continues and whether Q3’s delayed flu-season demand subsequently materializes.
- Assess the sustainability of operating profitability, gross margins, and cost savings, including exposure to Chinese sourcing and tariffs.
- Review liquidity and investment performance: cash declined while marketable investments increased, and investment sales may result in loss of principal.
- Monitor preferred dividend arrears, associated payment restrictions, and the terms of the preferred securities.
- Follow the legal-counsel lawsuit and any material developments or financial effects; the filing does not quantify a possible outcome.