Retractable Technologies, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. The company designs, manufactures and markets safety syringes and other medical products. VanishPoint syringes represented 90.7% of Q1 sales.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Net sales | $7.93 million | $7.67 million; up 3.4% |
| Gross profit / margin | $2.49 million / 31.4% | $2.86 million / 37.3% |
| Operating expenses | $2.67 million | $3.02 million; down 11.7% |
| Operating loss | $175,000 | $157,000 loss |
| Net loss | $129,000 | $179,000 loss |
| Loss applicable to common shareholders | $305,000; $0.01 per share | $356,000; $0.01 per share |
| Cash from operations | $(716,000) | $459,000 provided |
International revenue rose 66.6%, while U.S. revenue fell 6.9%; total unit sales increased 9.9%. Gross profit declined 12.9%, primarily from higher manufactured-product costs. Average manufactured-product cost per unit rose 4.0%, partly because international units made up a larger share of sales. Lower payroll costs following the 2018 workforce reduction helped reduce operating expenses.
Cash and cash equivalents were $4.23 million at quarter-end, down from $9.65 million at December 31, 2018, primarily reflecting approximately $4.5 million invested in exchange-traded and mutual funds. Working capital was $15.2 million and total current assets were $22.7 million against current liabilities of $7.44 million. Debt totaled approximately $2.94 million, including $302,000 current and $2.64 million long-term. The company also held $4.56 million in equity securities and $2.99 million in held-to-maturity securities.
Changes, outlook and risks
- Domestic sales weakness reflected lower volumes and average selling prices; international growth reflected higher volumes and prices. Three significant customers accounted for 48.6% of sales, versus 63.3% a year earlier.
- Approximately 76.1% of products were sourced from Chinese manufacturers. Loss of those suppliers could require replacement sourcing or increased domestic production, potentially raising costs. Management also cited tariff exposure, supplier relationships, production costs, market access and financing as risks.
- Management said it believes cash reserves, operations and debt financing when available can support ongoing needs, but access to additional loans is uncertain. It does not currently intend to raise public equity. No quantified earnings or revenue guidance was provided.
- Management said access to hospital markets remains difficult and that improved market access is needed to routinely achieve positive or break-even quarters. It cited possible flu-season demand and anticipated that EasyPoint needle demand may increase, without providing a forecast.
- In May 2019, the company, BD and MDC settled and released past claims against one another, ending related antitrust/false-advertising and patent-infringement litigation. The filing describes this as a subsequent event.
- At March 31, cumulative preferred-dividend arrears were approximately $4.31 million for Series III, $6.57 million for Series IV and $1.01 million for Series V. The company reported no arrears for Series I or II. The filing notes restrictions on dividends and certain share transactions when preferred dividends are in arrears.
- The company adopted the new lease standard in Q1, recording lease assets and liabilities of $163,000 at adoption with no accumulated-deficit impact. No material capital expenditure commitments were reported.
Important facts for investors to verify
- Whether international sales growth and overall unit-volume gains continue, and whether domestic sales recover.
- Whether manufacturing costs, product mix and any tariffs affect gross margins.
- Cash needs and the amount and liquidity of investment holdings, given negative operating cash flow and the cash decline.
- Exposure to Chinese suppliers and the feasibility and cost of alternative sourcing or domestic production.
- Preferred-dividend arrears, payment obligations and related restrictions.
- Effects, if any, of the BD/MDC settlement; the filing provides no settlement payment amount.