Retractable Technologies, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The company designs, manufactures, and markets safety syringes and other medical products. Results were strongly affected by U.S. government orders for COVID-19 vaccination syringes and government funding to expand domestic production.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $42.5 million | $11.6 million | $92.6 million | $22.8 million |
| Gross profit | $19.6 million | $3.7 million | $47.6 million | $7.2 million |
| Gross margin | 46.2% | 31.7% | 51.5% | 31.6% |
| Operating income | $12.7 million | $1.0 million | $36.1 million | $1.4 million |
| Operating margin | 29.8% | 8.3% | 39.0% | 6.3% |
| Net income | $10.7 million | $3.8 million | $28.6 million | $4.1 million |
| EPS, diluted | $0.31 | $0.11 | $0.83 | $0.11 |
Q2 sales rose about 267% year over year; six-month sales rose about 306%. Growth was principally volume-driven, including government orders. Q2 included a $1.38 million gain from forgiveness of the Paycheck Protection Program (PPP) loan. The prior-year comparisons also include a substantial tax benefit from release of a deferred-tax valuation allowance in 2020, affecting net-income comparability.
Cash, liquidity, and capital
- Cash and equivalents were $22.4 million at June 30, 2021, up from $17.6 million at year-end 2020. Current assets were $95.9 million and current liabilities $47.6 million.
- Six-month operating cash flow was $31.5 million, versus $0.2 million in 2020. Investing cash use was $42.8 million, primarily reflecting $38.2 million of property, plant, and equipment purchases. Financing provided $16.1 million, including $17.7 million of TIA proceeds.
- Total debt was approximately $2.24 million, including current maturities. The $1.36 million PPP loan and accrued interest were forgiven in May 2021.
- The balance sheet reported $50.4 million of long-term TIA-related deferred liability. TIA reimbursements are recorded as a liability and amortized over the useful lives of the funded assets; they are not presented as ordinary debt.
- Investments in debt and equity securities totaled $13.9 million. The company said these investments could be accessed for liquidity.
- Stockholders’ equity was $74.6 million, versus $49.9 million at December 31, 2020. A $5.06 million preferred-dividend payment was made July 22, 2021.
Material changes and business developments
- U.S. government sales were $27.4 million in Q2 and $65.1 million in the first half, representing 64.4% and 70.4% of sales, respectively. The company expected the U.S. government to remain a significant customer through at least March 2022.
- A February 2021 HHS contract had a $54.2 million five-month base period. The company reported nonbinding notice of a seven-month extension valued at $92.8 million; on July 28, options for four months, valued at $50.7 million, were exercised.
- The TIA, as amended, provides approximately $81.0 million in government funding to expand domestic needle and syringe production. The company had substantially completed a government-funded $6.7 million controlled environment and a company-funded $5.8 million warehouse, and had issued about $15.7 million in additional equipment purchase orders. The amended expansion target was to add at least 50% capacity by January 31, 2022.
- Property, plant, and equipment increased to $68.5 million from $30.8 million at year-end. The company also expected an approximately $5.0 million administrative-office expansion, targeted for completion toward the end of March 2022.
- VanishPoint syringes represented 94.9% of first-half sales. Approximately 90.4% of products in the first half were sourced from Chinese manufacturers.
Outlook, risks, and unusual items
- The filing provides no formal revenue or earnings guidance. Management cautioned that pandemic-related government orders and the TIA may not indicate future results; if government orders end and other demand does not replace them, expanded capacity could be underused.
- Risks include dependence on a major government customer, reliance on Chinese manufacturers, pandemic-related operating and sourcing uncertainty, higher raw-material and transportation costs, tariffs, and the ability to complete and ramp up domestic capacity. The company noted that cost increases may not be recoverable through price increases.
- The company reported increased employee-related, consulting, and expansion costs, including approximately $2.2 million of other employee bonuses, $1.3 million of share-based compensation, and executive bonuses and retroactive salary increases. Operating expenses rose 156.8% in Q2 and 100.3% for the first half.
- A $10 million common-stock repurchase plan began in June. 13,500 shares had been bought by June 30; by August 6, purchases totaled 95,626 shares for approximately $1.1 million.
- The company is pursuing a lawsuit against its former law firm and an attorney related to prior litigation against Becton, Dickinson and Company. The filing states that the defendants’ motion to dismiss was denied and that the denial was affirmed on appeal; no clear estimate of any potential recovery is provided.
- Management stated that disclosure controls were effective as of June 30, 2021 and that there were no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the exercised government-contract options, further extensions, and post-March 2022 demand support sales as pandemic-related orders wind down.
- Progress, final costs, reimbursement timing, and production ramp-up for TIA-funded equipment and facilities, including the January 2022 capacity target.
- Customer concentration and continued access to Chinese manufacturing, as well as the potential cost and timing of alternative sourcing.
- Cash conversion and working-capital needs as receivables, payables, capital spending, dividends, and government reimbursements fluctuate.
- Effects of the one-time PPP forgiveness gain, prior-year deferred-tax valuation-allowance release, stock-based compensation, and preferred dividends on earnings comparability and per-share results.