Utah Medical Products(UTMD) - 2020 Q4 - Annual Report

Part I Business The company designs, manufactures, and distributes specialized medical devices for critical care, neonatal, and women's health markets globally - UTMD specializes in medical devices for NICU, L&D, and women's health, focusing on safety and improved patient outcomes[12] - The company sells directly in the US, Canada, UK, France, Ireland, Australia, and New Zealand, and uses over 230 distributors in other countries[14] - Products from four key acquisitions accounted for 55% of consolidated sales in 2020[16] Products UTMD offers a diverse portfolio of devices for obstetrics, neonatal care, gynecology/urology, and blood pressure monitoring - The Filshie® Clip System, a female surgical contraception device, is a major product, representing 31% of UTMD's total U.S. Dollar denominated sales in 2020[46] - The company offers a comprehensive range of neonatal products under the GESCO® brand, including specialized catheters and feeding systems for critically-ill infants[27][28][31] - The LETZ® System is a key product for treating cervical intraepithelial neoplasia (CIN) in a physician's office setting, offering an economical alternative to hospital procedures[40] - The DELTRAN® Disposable Pressure Transducer (DPT) is a foundational product for blood pressure monitoring, sold as a standalone device and in kits[64] Marketing, Competition, and Distribution The marketing strategy emphasizes clinical differentiation against competitors and GPOs, with international sales comprising 39% of 2020 revenue - The primary marketing challenge is communicating the clinical benefits of its differentiated products to clinicians, as hospital purchasing is increasingly driven by unit price[70] - Outside the U.S. (OUS) sales accounted for 39% of consolidated total sales in 2020, down from 41% in 2019, partly due to COVID-19 restrictions[74] - The company utilizes a direct sales force of inside representatives and independent consultants, focusing on one-on-one contact with clinical practitioners[79] Regulation, Manufacturing, and Other Business Aspects The company's operations adhere to extensive global regulations, with a stable workforce and a self-insured product liability strategy - The company's manufacturing facilities in the U.S., UK, and Ireland are certified under ISO 13485:2016 and the Medical Device Single Audit Program (MDSAP)[94][95] - As of December 31, 2020, the company had 181 employees, with an average tenure of fifteen years for those in the U.S. and Ireland[85] - UTMD is self-insured for product liability and has never had a product liability judgment against it in its 42-year history[106] Order Backlog | Date | Backlog (Shippable < 90 days) | | :--- | :--- | | Jan 1, 2021 | $3,008 thousand | | Jan 1, 2020 | $1,627 thousand | | Jan 1, 2019 | $3,164 thousand | Risk Factors The company faces risks from healthcare market unpredictability, regulatory burdens, GPO pricing pressure, and foreign currency fluctuations - Legislative interference in U.S. healthcare and restrictions on nonessential medical procedures during pandemics create market unpredictability and can reduce demand[112] - Group Purchasing Organizations (GPOs) are a significant risk, as they restrict market access and focus on unit price, turning differentiated products into commodities[114] - Fluctuations in foreign currencies relative to the USD can significantly impact financial results, as a strong USD can reduce reported revenue[121] - The COVID-19 pandemic poses a risk of disrupting the supply chain or interfering with business operations due to loss of employee availability[122] Unresolved Staff Comments The company reports that there are no unresolved staff comments from the SEC - None[124] Properties UTMD is a vertically-integrated manufacturer that owns its primary production and office facilities in the U.S, Ireland, and England - The company owns its primary facilities, totaling over 220,000 square feet across the U.S., Ireland, and England, with smaller owned facilities in Australia and Canada[126] Legal Proceedings The company reports that there is currently no litigation or threatened litigation - Presently, there is no litigation or threatened litigation[128] Reserved This item is reserved and contains no information Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on NASDAQ, and in 2020, it paid dividends and repurchased approximately $7.0 million of its common stock 2020 Quarterly Stock Price Range (NASDAQ: UTMD) | Quarter | High | Low | | :--- | :--- | :--- | | 1st Quarter | $109.99 | $75.33 | | 2nd Quarter | $109.00 | $77.27 | | 3rd Quarter | $93.82 | $77.22 | | 4th Quarter | $94.87 | $78.90 | Cash Dividends Paid Per Share | Year | Total Dividends Per Share | | :--- | :--- | | 2020 | $1.120 | | 2019 | $1.100 | - In 2020, UTMD purchased 87,000 shares of its common stock for approximately $7.0 million ($6,426k in March and $551k in September)[134] Selected Financial Data The company's five-year data shows decreased sales and net income in 2020, while maintaining zero long-term debt and increasing dividends Selected Financial Data (in thousands, except per share data) | | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Sales | $42,178 | $46,904 | $41,998 | | Net Income | $10,798 | $14,727 | $18,555 | | Earnings Per Share (Diluted) | $2.94 | $3.94 | $4.95 | | Total Assets | $111,745 | $109,787 | $99,768 | | Long-term Debt | $0 | $0 | $0 | | Cash Dividends Per Share | $1.120 | $1.100 | $1.085 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes a 10.1% revenue decline in 2020 to the COVID-19 pandemic, while highlighting strong liquidity and zero debt 2020 vs. 2019 Financial Performance | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $42,178 | $46,904 | (10.1%) | | Gross Profit (GP) | $25,548 | $29,466 | (13.3%) | | Operating Income | $13,708 | $17,632 | (22.3%) | | Net Income (US GAAP) | $10,798 | $14,727 | (26.7%) | - The financial results were significantly impacted by government restrictions on nonessential medical procedures due to the COVID-19 pandemic, particularly in Q2 2020[141] - The company's cash balance increased by $8.8 million to $51.6 million at year-end 2020, and it remained debt-free[151] Results of Operations Consolidated sales fell 10.1% in 2020 due to the pandemic, with OUS sales declining more sharply and gross margin decreasing to 60.6% Global Revenues by Product Category (in thousands) | Category | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Obstetrics | $4,523 | $5,000 | (9.5%) | | Gynecology/ Electrosurgery/ Urology | $20,552 | $25,354 | (18.9%) | | Neonatal | $5,870 | $6,066 | (3.2%) | | Blood Pressure Monitoring & Acc. | $11,233 | $10,484 | +7.1% | - Direct-to-end-user sales, which drive profitability, were down 14.3% for the year, with the UK and France experiencing the sharpest declines[142][170] - Gross Profit Margin (GPM) declined to 60.6% from 62.8% in 2019, attributed to lower absorption of fixed manufacturing overhead and pandemic costs[189][191] - Operating expenses included $6.5 million in non-cash amortization of Identifiable Intangible Assets (IIA) from acquisitions, significantly impacting operating income[194] Liquidity and Capital Resources Net cash from operations increased to $20.1 million due to working capital management, funding share repurchases and dividends Cash Flow Summary (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash from operating activities | $20,137 | $17,056 | | Net cash from investing activities | ($860) | ($21,540) | | Net cash from financing activities | ($10,734) | ($4,227) | | Net increase (decrease) in cash | $8,803 | ($8,325) | - The company repurchased 87,000 shares for $7.0 million and paid $4.1 million in dividends in 2020[233][236] - Management believes future income and strong working capital management will provide sufficient liquidity for internal growth and capital expenditures[237] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk stems from foreign currency exchange rate fluctuations, which it manages without using hedging instruments - The company's primary market risk is foreign currency exchange rate fluctuations involving the USD, EUR, GBP, AUD, and CAD[250] Financial Statements and Supplementary Data This section includes audited consolidated financial statements, management's report on internal controls, and independent auditor reports - Management concluded that the company maintained effective internal control over financial reporting as of December 31, 2020[256] - The independent auditors, Haynie & Company and Nortons Assurance Limited, issued unqualified opinions on the consolidated financial statements[260][271] - The financial statements include the Consolidated Balance Sheets, Statements of Income, Statements of Cash Flow, Statements of Stockholders' Equity, and detailed Notes[253] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on accounting principles, practices, or financial statement disclosure - None[355] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of year-end 2020 - The CEO and Principal Financial Officer concluded that disclosure controls and procedures were effective as of December 31, 2020[357] - No material changes to internal control over financial reporting occurred in Q4 2020[359] Other Information The company reports no other information for this item - None[360] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, officers, and corporate governance is incorporated by reference from the 2021 proxy statement - Required information is incorporated by reference from the 2021 definitive proxy statement[363] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2021 proxy statement - Required information is incorporated by reference from the 2021 definitive proxy statement[365] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the 2021 proxy statement - Required information is incorporated by reference from the 2021 definitive proxy statement[366] Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the 2021 proxy statement - Required information is incorporated by reference from the 2021 definitive proxy statement[367] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the 2021 proxy statement - Required information is incorporated by reference from the 2021 definitive proxy statement[369] Part IV Exhibits, Financial Statement Schedules This section lists all documents filed with the Form 10-K, including exhibits and required Sarbanes-Oxley certifications - This section contains a list of all exhibits filed with the report, including corporate governance documents, management contracts, and required certifications[374] - Financial Statement Schedules are omitted because the required information is included within the main financial statements and notes[373]