Retractable Technologies, Inc. — Q1 2023 Form 10-Q
Business and period: The company designs, manufactures and markets safety syringes and other medical products. This unaudited report covers the three months ended March 31, 2023, compared with Q1 2022. VanishPoint syringes represented 89.7% of Q1 2023 sales.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $11.0 million | $44.7 million |
| Gross profit / gross margin | $2.9 million / 26.1% | $15.6 million / 34.8% |
| Operating income (loss) | $(2.7) million | $9.7 million |
| Net income | $1.0 million | $7.6 million |
| Net income applicable to common shareholders / diluted EPS | $0.9 million / $0.03 | $7.6 million / $0.23 |
| Cash from (used by) operations | $(3.7) million | $21.1 million |
- Sales fell 75.4% year over year and unit sales fell 73.0%. The operating loss reflected lower revenue and higher per-unit costs at reduced production levels.
- Despite the operating loss, the company reported net income, including $1.6 million of TIA-related other income, $1.5 million of unrealized investment gains and $0.7 million of realized investment gains.
- Cash and cash equivalents were $6.4 million at quarter-end, down from $19.7 million at year-end. Investments in debt and equity securities were $41.0 million, up from $29.7 million. Investing cash use was $9.6 million, primarily reflecting securities purchases.
- Total assets were $193.7 million and total liabilities were $86.2 million. Reported debt was approximately $1.75 million, including current maturities. Other long-term liabilities of $74.4 million primarily represent deferred TIA funding, not conventional debt.
- Current assets were $88.5 million and current liabilities were $10.3 million. The company reported $22.1 million of inventory and $9.5 million of income taxes receivable.
Material changes and management commentary
- Domestic revenue declined 79.1%, principally because there were no U.S. government sales in Q1 2023, compared with $15.7 million in Q1 2022. International revenue declined approximately 70.3%, primarily due to fewer vaccination-related orders.
- International sales were 50.7% of Q1 2023 sales. Management said customers’ remaining syringe inventories, uncertain future international orders, vaccine fatigue or hesitancy, and unknown flu-season and booster demand make future demand difficult to predict.
- The company increased investment in U.S. government-backed mutual funds by about $9 million and restructured equity investments by about $6 million during the quarter. Management said the changes were intended to increase investment security; the purchases reduced cash.
- Approximately 92.6% of products were obtained from Chinese manufacturers. Management identified the possibility of needing alternate suppliers or more domestic production if those supply arrangements become unavailable. Fixed-price contracts cover many China-sourced finished goods; raw-material costs, tariffs, supplier costs and production volumes may affect margins.
- The company reduced its workforce by approximately 22% in March 2023, following a 16% reduction in June 2022, citing completion of facility expansion and fulfillment of government vaccination orders. It reported no remaining capital projects or plans for further facility expansion.
Outlook, risks and contingencies
- No quantified revenue or earnings guidance is provided. Management believes cash, investments and expected operating income will be adequate for short-term needs for at least 12 months from issuance of the financial statements, and for currently foreseeable long-term needs.
- The $81.0 million TIA funded domestic production expansion. The company said it completed required construction and equipment purchases and submitted all reimbursement requests. The final reimbursement, $1.31 million, was received on April 6, 2023; no further TIA collections are expected.
- A lawsuit against former legal counsel alleging malpractice and negligence is scheduled for jury trial on October 30, 2023. The filing does not provide a clear estimate of potential recovery or financial exposure.
- The filing added risk related to banking and financial-services instability, including possible impaired access to capital or deposits and potential loss of funds. Other cited risks include demand changes, tariffs, supplier relationships, patent protection and market access.
- Sales to three significant customers were 63.5% of Q1 2023 revenue, compared with 75.6% in Q1 2022. The company also has approximately $1.4 million of dividends payable to former preferred shareholders it has not yet located.
Important facts for investors to verify
- Whether sales and unit volumes recover after the end of U.S. government vaccination orders, and whether international demand continues.
- Customer concentration, distributor inventory levels, and the reliability and economics of Chinese manufacturing and supply arrangements.
- The liquidity and market value of the $41.0 million investment portfolio, including how much could be accessed for operations if needed.
- The expected outcome and potential financial impact of the October 2023 legal-malpractice trial.
- That the final TIA reimbursement was received after quarter-end and that no additional reimbursements are expected.