Retractable Technologies, Inc. — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020. The filing was signed March 31, 2021. The company manufactures and markets safety syringes and other medical products; it reports one operating segment.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $81.9 million | $41.8 million |
| Gross profit / margin | $37.0 million / 45.2% | $14.1 million / 33.8% |
| Operating income | $24.1 million | $3.0 million |
| Net income | $24.2 million | $3.1 million |
| Income applicable to common shareholders / diluted EPS | $26.6 million / $0.80 | $2.4 million / $0.07 |
| Cash flow from operations | $19.0 million | $2.2 million |
- Overall unit sales rose 74.0%; domestic unit sales rose 120.0%. Domestic sales, including the HHS order, were 90.2% of revenue, versus 76.3% in 2019. International revenue declined 18.6%.
- At year-end, cash and equivalents were $17.6 million, investments $8.1 million, and current assets $69.5 million versus current liabilities of $27.9 million (working capital approximately $41.6 million). Accounts receivable increased to $32.9 million from $6.6 million, largely in connection with the government order.
- Cash used in investing activities was $19.3 million, including $21.0 million of property and equipment purchases. Financing provided $12.0 million, including TIA proceeds. Cash increased $11.6 million during the year.
- Total debt was $3.7 million, including $1.0 million current. The company also reported $24.5 million of other long-term liabilities, including $22.4 million associated with the TIA and $2.0 million of long-term preferred-stock repurchase obligations.
Material changes and unusual items
- Revenue nearly doubled, driven primarily by COVID-19 and flu-vaccination demand. The U.S. government accounted for $31.6 million, or 39.0%, of FY2020 revenue under an $83.8 million HHS order, plus expedited freight costs.
- Gross margin increased to 45.2%, which management attributed principally to higher sales volumes and the sales mix. Operating expenses rose 15.9%, partly due to hiring and expansion activity.
- Interest and other income increased to $2.3 million, including $1.9 million of unrealized investment gains. Management released its deferred-tax valuation allowance, recognizing a $4.6 million net deferred tax asset.
- Common-shareholder income and EPS include a $3.0 million deemed contribution related to preferred-stock exchanges. Those exchanges involved $3.8 million cash consideration, 754,000 common shares, and waiver of $7.6 million of preferred dividends in arrears.
- Preferred dividends in arrears were reported at approximately $5.0 million at year-end. The company has no current plan to pay common-stock dividends.
Outlook, risks and contingencies
- In February 2021, HHS placed a new order with a $54.2 million base value, including product pricing and reimbursable freight, for a five-month period. Up to seven optional one-month extensions could add $92.8 million if fully exercised. The remaining deliveries under the 2020 HHS order were also expected in 2021.
- A $53.7 million government TIA funds expansion of domestic production. The company reported substantial completion of approximately 27,800 square feet of controlled-environment space and expected a 55,000-square-foot warehouse to be completed in Q2 2021. The warehouse, estimated at $5.8 million, is the company’s responsibility. Management cautioned that post-pandemic demand may not support the expanded capacity.
- Government orders may be terminated, and timely performance depends partly on completing facility and equipment expansion. A large government workload could also affect service to other customers. No formal longer-term financial guidance is provided.
- Manufacturers in China supplied approximately 85.2% of the company’s products in 2020, creating supplier, trade-policy, tariff and potential disruption risks. Government customer concentration and the possibility of lower vaccine-related demand are additional material uncertainties.
- Other disclosed risks include patent protection and competition from larger companies, product liability, COVID-19 disruption, investment-market volatility, and uncertainty over forgiveness and eligibility review of the $1.363 million PPP loan. A lawsuit against former legal counsel over prior BD litigation remained pending; an appeal hearing was scheduled for April 7, 2021.
- The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control audit opinion.
Important facts for investors to verify
- Actual collections of the substantial year-end receivables and the timing and completion of government contract deliveries.
- Whether the optional HHS contract extensions are exercised, and the level of demand after pandemic-related orders conclude.
- Progress, final cost, funding and production ramp-up for the TIA expansion and company-funded warehouse.
- Exposure to Chinese sourcing, alternative supply capacity, and the effect of any trade restrictions or cost increases.
- Investment gains and tax-asset assumptions, the outstanding preferred-dividend and repurchase obligations, and the PPP loan’s forgiveness status.