Utah Medical Products, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. UTMD manufactures and markets specialty medical devices. This unaudited filing covers the quarter and six months ended June 30, 2021; financial amounts are in thousands of U.S. dollars except per-share data. Comparisons with 2020 are affected by pandemic-related restrictions on elective procedures, which depressed Q2 2020 sales.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $12,604 | $8,787 | $23,568 | $19,689 |
| Gross profit | $7,785 | $4,950 | $14,732 | $11,786 |
| Operating income | $4,765 | $1,977 | $8,652 | $5,840 |
| Net income (GAAP) | $3,426 | $1,313 | $6,450 | $4,452 |
| Diluted EPS (GAAP) | $0.94 | $0.36 | $1.76 | $1.21 |
| Gross margin | 61.8% | 56.3% | 62.5% | 59.9% |
| Operating margin | 37.8% | 22.5% | 36.7% | 29.7% |
Q2 sales rose 43.4% year over year and first-half sales rose 19.7%. Management attributed stronger gross margins primarily to improved absorption of fixed manufacturing overhead as sales recovered. Operating expenses were broadly stable, helping operating income increase 141.0% in Q2 and 48.2% for the first half.
- Sales mix: Q2 domestic sales were $8,023, up 46%; sales outside the U.S. were $4,581, up 40% in reported dollars. Favorable foreign exchange contributed $329 to Q2 sales and $581 to first-half sales. First-half sales by category included Gynecology/Electrosurgery/Urology of $10,802 and Blood Pressure Monitoring and Accessories of $7,361.
- Cash flow: First-half operating cash flow was $10,225, versus $9,351 in 2020. Capital expenditures were $222, dividends paid were $2,077, and cash and cash equivalents increased to $59,506 from $51,590 at year-end 2020.
- Financial position: Total assets were $116,794 and stockholders’ equity was $107,365 at June 30, 2021. Working capital was $66,155. The company reported no debt; total liabilities were $9,429. Cash and investments were $59,506.
Material changes, outlook, and risks
GAAP results include a $390 increase in the deferred tax liability and income tax provision in Q2 2021, reflecting the U.K.’s enacted increase in its corporate tax rate to 25% beginning in 2023. The comparable Q2 2020 period included a $225 deferred-tax adjustment. Excluding these items, management reported non-GAAP Q2 net income of $3,817 and diluted EPS of $1.044; first-half non-GAAP net income was $6,840 and diluted EPS was $1.871. These are company-presented non-GAAP measures, not replacements for GAAP results.
Management said pandemic-related policy responses continue to influence demand and cautioned that some first-half sales may represent catch-up procedures. It does not expect the dramatic first-half growth rate to continue in the second half. If second-half revenue matches first-half revenue, management estimated full-year 2021 sales would be up about 12% versus 2020. Management also said adjusted EBITDA of $25 million was likely achievable for 2021; first-half adjusted EBITDA was $12,471. Domestic OEM sales are expected to continue growing, but production capacity limits the pace. These statements are forward-looking and subject to risk.
Risks discussed include renewed pandemic restrictions and supply-chain or employee disruptions; rising raw-material, freight, and labor costs; production-capacity constraints; foreign-exchange movements; regulatory burdens and delays; distributor dependence; product liability; and changes in trade policy. The company reported no current litigation, no share repurchases in the first half, and no material change to internal controls.
Important facts for investors to verify
- Whether the post-pandemic sales recovery persists, especially given management’s caution about second-half growth and possible catch-up procedures.
- Whether OEM capacity limits, labor availability, and higher input and freight costs affect margins or sales growth.
- The calculation and assumptions behind the $25 million adjusted EBITDA outlook and the company’s non-GAAP tax-adjusted results.
- The effect of the U.K. tax-rate change on future cash taxes and the Femcare intangible-asset deferred tax liability.
- Foreign-exchange exposure and the distinction between reported-dollar and constant-currency sales growth.