Utah Medical Products(UTMD) - 2021 Q4 - Annual Report

PART I Business Utah Medical Products, Inc. (UTMD) designs, manufactures, and distributes medical devices for critical care, neonatal intensive care, labor and delivery, and women's health, selling directly and through distributors globally - UTMD specializes in producing high-quality, cost-effective medical devices focused on safety and improved patient outcomes, particularly in NICU, labor & delivery, and women's health[12] - The company utilizes a mixed distribution model: direct sales in the U.S., Canada, UK, France, Ireland, Australia, and New Zealand, and a network of over 220 distributors in other countries[14] - Products from four key acquisitions (Columbia Medical, Gesco, Abcorp, Femcare) accounted for 51% of the company's consolidated sales in 2021[16] Products UTMD's product portfolio spans Labor and Delivery, Neonatal Intensive Care, Gynecology/Urology/Electrosurgery, and Blood Pressure Monitoring, with the Filshie Clip System being a significant revenue contributor - The Filshie® Clip System, a female surgical contraception device, was a major revenue contributor, representing 27% of UTMD's total U.S. Dollar denominated sales in 2021[51] - The Labor and Delivery product line includes fetal monitoring accessories like the INTRAN® PLUS transducer-tipped IUP catheter system and specialized tools such as the BT-CATH® for postpartum hemorrhage[19][20][23] - The Neonatal Intensive Care portfolio features devices specifically designed for premature infants, such as DISPOSA-HOOD™ for oxygen administration and the GESCO® line of biocompatible silicone catheters (e.g., UMBILI-CATH™, PICC-NATE®)[30][32][33] - The Gynecology/Urology/Electrosurgery segment includes the LETZ® System for treating HPV-related cervical lesions, the EPITOME® electrosurgical scalpel for precise incisions, and the LIBERTY® System for treating urinary incontinence[45][49][64] Marketing, Competition, and Distribution UTMD competes on patient safety and device performance, facing challenges from GPOs, with 38% of 2021 sales from outside the U.S. through direct and distributor channels Sales Breakdown (2019-2021) | Region | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | OUS Sales (% of Total) | 38% | 39% | 41% | - The primary marketing challenge is maintaining customer focus on the clinical benefits of UTMD's differentiated products, as U.S. hospitals increasingly prioritize out-of-pocket unit price, weakening UTMD's competitive position[74] - In the U.S., sales to Med/Surg distributors comprised 11% of total domestic direct sales in 2021 (excluding OEM sales)[82] - The company's direct sales force is primarily composed of "inside" representatives who operate via telephone and email, supplemented by independent representatives and clinical specialists for training[83] New Product Development, Employees, and IP UTMD focuses on R&D (1-2% of sales) for product enhancement and acquisitions, values its experienced workforce (14-year average tenure), and prioritizes trademarks over patents for intangible value - Internal product development expenses are expected to remain in the range of 1-2% of sales[88] - As of December 31, 2021, the company had 178 full-time and 33 part-time employees worldwide, with an average tenure of 14 years for full-time employees in the U.S. and Ireland[89] - The company owns eight unexpired U.S. patents and 31 registered trademarks, but considers its trademarks and brand recognition more valuable than its patents[92] Government Regulation and Operations UTMD's products are FDA-regulated, with the Filshie Clip System as a Class III device, and its facilities are ISO13485:2016 and MDSAP certified, managing supply chain risks with safety stocks - The Filshie Clip System is a Class III device, subject to more stringent regulatory controls than the company's other devices, which are primarily Class I or Class II[98] - UTMD's manufacturing facilities in the UK, Ireland, and Utah are certified under the ISO13485:2016 standard and the Medical Device Single Audit Program (MDSAP)[99] - The company is self-insured for product liability risk and has no product liability judgments against it in its 44-year history, considering recent lawsuits without merit[110][111] Order Backlog (Shippable < 90 days) | As of | Amount (in thousands) | | :--- | :--- | | Jan 1, 2022 | $4,956 | | Jan 1, 2021 | $3,008 | | Jan 1, 2020 | $1,627 | Risk Factors The company faces market unpredictability from healthcare legislation, increased regulatory burdens, GPO pressures, product liability, reliance on distributors, key personnel loss, and foreign currency fluctuations - Legislative healthcare interference and restrictions on "nonessential" medical procedures in the U.S. create an unpredictable marketplace[115] - Increasing regulatory burdens and substantial user fees create significant barriers to new product introduction and revenue generation[116] - Group Purchasing Organizations (GPOs) add costs and restrict market access by treating specialized devices as commodities, focusing on price over clinical value[117] - A significant portion of sales are invoiced in foreign currencies, making financial results susceptible to fluctuations in exchange rates relative to the USD[123] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[126] Properties UTMD is a vertically-integrated manufacturer, owning most of its facilities, including a 105,000 sq ft facility in Utah and a 77,000 sq ft facility in Ireland for primary manufacturing - The company owns all its property and facilities, with the exception of a long-term lease on a section of its Midvale parking lot[128] - Total operational space includes 105,000 sq ft in Utah, 77,000 sq ft in Ireland, 38,600 sq ft in England, 3,200 sq ft in Australia, and 4,700 sq ft in Canada[128] Legal Proceedings The company states there is no current or threatened litigation expected to materially impact its consolidated financial results - There is no current or threatened litigation expected to have a material impact on the company's consolidated financial results[129] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities UTMD common stock trades on NASDAQ, with at least 2,000 beneficial stockholders, paid $3.140 per share in dividends in 2021 (including a special dividend), and made no share repurchases in 2021 Cash Dividends Per Share | Year | Total Dividends Paid Per Share | | :--- | :--- | | 2021 | $3.140 | | 2020 | $1.120 | - The company did not purchase any of its own securities in 2021, but purchased 87,000 shares for $6,977 thousand in 2020[135] - As of March 6, 2022, the number of beneficial stockholders was at least 2,000[133] Selected Financial Data This section provides a five-year summary of UTMD's consolidated financial data, showing net sales growth to $49.1 million in 2021, net income of $14.8 million, diluted EPS of $4.04, and zero long-term debt Five-Year Selected Financial Data (in thousands, except per share data) | | 2021 | 2020 | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $49,054 | $42,178 | $46,904 | $41,998 | $41,414 | | Net Income | 14,788 | 10,798 | 14,727 | 18,555 | 8,505 | | Earnings Per Common Share (Diluted) | 4.04 | 2.94 | 3.94 | 4.95 | 2.28 | | Total Assets | 115,636 | 111,745 | 109,787 | 99,768 | 92,745 | | Long-term Debt | 0 | 0 | 0 | 0 | 0 | | Cash Dividends Per Common Share | 3.140 | 1.120 | 1.100 | 1.085 | 1.065 | Management's Discussion and Analysis of Financial Condition and Results of Operations UTMD's 2021 financial performance showed strong recovery, with worldwide revenues growing 16.3% to $49.1 million, net income rising 37.0% to $14.8 million, improved profit margins, and a strengthened debt-free financial condition Consolidated Income Statement Highlights (2021 vs. 2020 & 2019) | Consolidated Income Statement | 2021 | % Change vs 2020 | % Change vs 2019 | | :--- | :--- | :--- | :--- | | Worldwide Revenues (in thousands) | $49,054 | +16.3% | +4.6% | | Gross Profit (in thousands) | $30,917 | +21.0% | +4.9% | | Operating Income (in thousands) | $18,880 | +37.7% | +7.1% | | Net Income (US GAAP) (in thousands) | $14,788 | +37.0% | +0.4% | | EPS (US GAAP) | $4.041 | +37.4% | +2.6% | Key Profit Margins (2019-2021) | | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Gross Profit Margin (GPM) | 63.0% | 60.6% | 62.8% | | Operating Income Margin | 38.5% | 32.5% | 37.6% | | Net Income Margin (US GAAP) | 30.1% | 25.6% | 31.4% | - The company's financial condition improved significantly, with cash increasing by $9.4 million to $61.0 million and working capital up 19% to $69.4 million, despite paying a $7.3 million special dividend in late 2021[150][152] - The company remains debt-free, with a total debt ratio (total liabilities to total assets) of 7% at the end of 2021[152] Results of Operations In 2021, total revenues increased 16.3% to $49.1 million, driven by U.S. OEM sales and global direct-to-end-user recovery, leading to a gross profit margin of 63.0% and operating income growth of 37.7% Revenue by Channel (in thousands) | Channel | 2021 | % Change vs 2020 | % Change vs 2019 | | :--- | :--- | :--- | :--- | | Direct to End-User | $28,441 | +9.7% | (6.0%) | | All Other OUS (Distributors) | $11,050 | +13.3% | +9.5% | | U.S. OEM Sales | $9,563 | +47.3% | +46.1% | | Worldwide Revenues | $49,054 | +16.3% | +4.6% | Global Revenues by Product Category (in thousands) | Category | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Obstetrics | $4,675 | $4,523 | $5,000 | | Gynecology/ Electrosurgery/ Urology | $21,973 | $20,552 | $25,354 | | Neonatal | $6,691 | $5,870 | $6,066 | | Blood Pressure Monitoring/Other | $15,715 | $11,233 | $10,484 | | Total | $49,054 | $42,178 | $46,904 | - Gross Profit Margin (GPM) improved to 63.0% in 2021 from 60.6% in 2020, attributed to better absorption of fixed manufacturing overheads and a return to more normal self-insured health care plan costs[186][187] - Total operating expenses were $12.0 million, of which $6.6 million (55%) was non-cash amortization expense for identifiable intangible assets (IIA) from the Femcare and CooperSurgical acquisitions[193][202] Liquidity and Capital Resources The company maintained strong liquidity in 2021, with $21.2 million in operating cash flow, a $9.4 million increase in cash to $61.0 million, and $11.5 million in dividend payments, remaining debt-free Cash Flow Summary (in thousands) | Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $21,203 | $20,137 | $17,056 | | Net Cash from Investing Activities | ($552) | ($860) | ($21,540) | | Net Cash from Financing Activities | ($10,905) | ($10,734) | ($4,227) | | Net Increase (Decrease) in Cash | $9,384 | $8,803 | ($8,325) | - Financing activities in 2021 were dominated by $11.5 million in cash dividends paid to stockholders[235] - The company did not repurchase any of its stock in 2021, compared to repurchasing 87,000 shares for $7.0 million in 2020[232][233] Quantitative and Qualitative Disclosures About Market Risk UTMD's primary market risk stems from foreign currency exchange rate fluctuations (USD, EUR, GBP, AUD, CAD), which it manages by invoicing in local currency or converting as needed, without using hedging instruments - The primary market risk is from foreign currency exchange rate fluctuations involving the USD, EUR, GBP, AUD, and CAD[250] - The company does not use separate hedging transactions to manage its foreign currency risk[250] Financial Statements and Supplementary Data This section presents UTMD's audited consolidated financial statements for 2021 and 2020, including Management's Report on Internal Control and independent auditor reports, with an unqualified opinion - Management concluded that the company maintained effective internal control over financial reporting as of December 31, 2021[256] - The independent auditor, Haynie & Company, issued an unqualified opinion on the financial statements for the two-year period ended December 31, 2021[260] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles, financial disclosure, or auditing scope - None[355] Controls and Procedures The CEO and Principal Financial Officer concluded that disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal controls during Q4 2021 - Management concluded that as of December 31, 2021, the company's disclosure controls and procedures were effective[357] - No changes in internal control over financial reporting occurred during Q4 2021 that materially affected, or were reasonably likely to materially affect, the company's internal controls[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, executive officers, and corporate governance is incorporated by reference from the 2022 proxy statement, with the Code of Ethics available online - This section incorporates information by reference from the registrant's definitive proxy statement for the 2022 annual meeting of stockholders[363] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for the 2022 annual meeting of stockholders - This section incorporates information by reference from the registrant's definitive proxy statement for the 2022 annual meeting of stockholders[365] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and equity compensation plans is incorporated by reference from the company's definitive proxy statement for the 2022 annual meeting of stockholders - This section incorporates information by reference from the registrant's definitive proxy statement for the 2022 annual meeting of stockholders[366] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement for the 2022 annual meeting of stockholders - This section incorporates information by reference from the registrant's definitive proxy statement for the 2022 annual meeting of stockholders[367] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's definitive proxy statement for the 2022 annual meeting of stockholders - This section incorporates information by reference from the registrant's definitive proxy statement for the 2022 annual meeting of stockholders[369] PART IV Exhibits, Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including corporate governance, employment agreements, and SOX certifications, with financial statement schedules omitted as inapplicable - The documents filed as part of this report are listed, including certifications by the CEO and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[374] - Financial Statement Schedules have been omitted because they are either not applicable or the required information is already included in the Financial Statements and notes[373] Form 10-K Summary The company provides no summary for this item - None[377]