Utah Medical Products(UTMD) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements Presents unaudited consolidated condensed financial statements for Q1 2023, including Balance Sheets, Income, Cash Flows, and Equity Statements | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets (in thousands) | $127,770 | $123,874 | | Cash & Investments (in thousands) | $80,912 | $75,052 | | Total Liabilities (in thousands) | $9,752 | $9,620 | | Total Stockholders' Equity (in thousands) | $118,018 | $114,254 | | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Sales, net (in thousands) | $12,520 | $12,323 | | Gross Profit (in thousands) | $7,843 | $7,533 | | Operating Income (in thousands) | $4,439 | $4,522 | | Net Income (in thousands) | $4,214 | $3,534 | | EPS (diluted) | $1.16 | $0.96 | | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities (in thousands) | $6,915 | $5,046 | | Net cash used in investing activities (in thousands) | ($43) | ($237) | | Net cash provided by/(used in) financing activities (in thousands) | ($1,049) | $19 | | Net increase in cash and cash equivalents (in thousands) | $5,860 | $4,899 | Notes to Consolidated Condensed Financial Statements Provides detailed disclosures on inventories, stock-based compensation, global revenues by product, and EPS calculations, complementing the financial statements Inventories (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Finished goods | $1,935 | $1,896 | | Work-in-process | $1,500 | $1,193 | | Raw materials | $6,505 | $5,725 | | Total | $9,940 | $8,814 | Q1 2023 Global Revenues by Product Category (in thousands) | Product Category | Domestic | Outside US | Total | | :--- | :--- | :--- | :--- | | Obstetrics | $806 | $209 | $1,015 | | Gynecology/Electrosurgery/Urology | $2,520 | $3,073 | $5,593 | | Neonatal | $1,385 | $377 | $1,762 | | Blood Pressure Monitoring & Accessories | $2,474 | $1,676 | $4,150 | | Total | $7,185 | $5,335 | $12,520 | - Basic and diluted EPS for Q1 2023 were both $1.16, calculated from a net income of $4.214 million. This compares to a basic EPS of $0.97 and diluted EPS of $0.96 in Q1 2022 from a net income of $3.534 million[22] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2023 financial performance, highlighting sales growth, margin changes, operating expenses, and liquidity Q1 2023 vs Q1 2022 Performance Summary (in thousands, except EPS) | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $12,520 | $12,323 | +1.6% | | Gross Profit | $7,843 | $7,532 | +4.1% | | Operating Income | $4,439 | $4,522 | (1.9%) | | Net Income | $4,214 | $3,534 | +19.2% | | EPS (diluted) | $1.159 | $0.964 | +20.2% | - Domestic sales decreased by 10%, while sales outside the U.S. (OUS) grew by 23% in USD terms (28% in constant currency)[25] - The company's balance sheet remains strong with no debt. Cash and Investments grew to $80.9 million at the end of Q1 2023 from $75.1 million at the end of 2022[30] Revenues Total consolidated sales increased 1.6% to $12.5 million, driven by strong international growth offsetting domestic declines - Domestic sales components saw declines: direct sales were down 9.3%, OEM sales were down 14.0%, and Filshie device sales were down 3.9% compared to Q1 2022[34] - OUS sales grew 22.9% to $5,335k. In constant currency, OUS sales were up 28.1% compared to Q1 2022[34] Worldwide Revenues by Product Category (in thousands) | Product Category | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Obstetrics | $1,015 | $1,049 | | Gynecology/ Electrosurgery/ Urology | $5,593 | $5,102 | | Neonatal | $1,762 | $1,873 | | Blood Pressure Monitoring & Acc. | $4,150 | $4,299 | | Total | $12,520 | $12,323 | Gross Profit Gross profit increased 4.1% to $7.8 million, with margin improving to 62.6% due to better overhead absorption and lower healthcare costs - Gross Profit increased by $310k (+4.1%) in Q1 2023 compared to Q1 2022[36] - The Gross Profit Margin improved to 62.6% in Q1 2023 from 61.1% in Q1 2022, driven by better overhead absorption in Ireland and lower U.S. healthcare costs[26][36] Operating Income Operating income slightly decreased to $4.4 million, with margin declining to 35.5% due to increased litigation expenses - Operating income decreased by $84k (1.9%) YoY, mainly due to a $348k increase in litigation expenses[27][39] Operating Expenses Breakdown (in thousands) | Expense Category | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | S&M Expense | $387 | $336 | | R&D Expense | $144 | $123 | | G&A Expense (Total) | $2,873 | $2,551 | | Litigation Expense (within G&A) | $409 | $61 | | IIA Amortization (within G&A) | $1,588 | $1,637 | | Total Operating Expenses | $3,404 | $3,010 | Non-operating Income Net non-operating income surged to $681k in Q1 2023, primarily driven by a significant increase in interest income - Net non-operating income was $681k in Q1 2023 compared to $8k in Q1 2022[41] - The primary driver was a $646k year-over-year increase in interest income[41] Income Before Income Taxes (EBT) Consolidated EBT rose 13.0% to $5.1 million, driven by higher non-operating income, with adjusted EBITDA increasing 8.6% - EBT increased by $589k (+13.0%) to $5,119k in Q1 2023. The increase was primarily due to $673k higher non-operating income[41] Non-US GAAP Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | EBT | $5,119 | $4,530 | | Depreciation Expense | $154 | $149 | | Total Amortization Expense | $1,596 | $1,646 | | Stock Option Compensation Expense | $50 | $43 | | UTMD non-US GAAP EBITDA | $6,919 | $6,371 | Net Income and Earnings Per Share (EPS) Net income increased 19.2% to $4.2 million, with diluted EPS growing 20.2% to $1.16, driven by higher EBT and a lower tax rate - Net Income rose 19.2% to $4,214k, while diluted EPS rose 20.2% to $1.16[45][46] - The average consolidated income tax rate decreased to 17.7% in Q1 2023 from 22.0% in Q1 2022, primarily due to tax-exempt interest income[45] - A cash dividend of $1,070k ($0.295/share) was paid in Q1 2023[48] Liquidity and Capital Resources Liquidity remains strong with cash and investments increasing to $80.9 million, supported by robust operating cash flow and a healthy balance sheet - Net cash provided by operating activities was $6,915k in Q1 2023, up from $5,046k in Q1 2022[50] - The current ratio improved to 15.7 at March 31, 2023, from 15.1 at December 31, 2022[55] - The total debt ratio (total liabilities/total assets) was 7.6% as of March 31, 2023[57] Management's Outlook Management reaffirms its 2023 plan, focusing on multinational integration, product development, profitability, capital returns, and strategic acquisitions - The company expects to achieve its plan for 2023 as a whole, based on Q1 results[58] - Strategic objectives for 2023 include: - Integrating multinational operations - Marketing the Filshie Clip System in the U.S. - Internal new product development - Maintaining profitable performance - Returning capital to stockholders - Seeking accretive acquisition opportunities[60] Quantitative and Qualitative Disclosures About Market Risk The company manages foreign currency exchange rate risk from multinational operations through invoicing and liquidity strategies, without hedging instruments - The company has operations and assets denominated in USD, EUR, GBP, AUD, and CAD, exposing it to foreign exchange rate risk[61] - UTMD manages foreign currency risk without using separate hedging transactions, instead relying on invoicing strategies and liquidity management[61] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls - The CEO and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[62] - No changes occurred during Q1 2023 that materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting[63] PART II – OTHER INFORMATION Legal Proceedings The company is involved in litigation, primarily related to the Filshie clip, but does not expect a material impact on financial results - The company is currently party to litigation, primarily lawsuits related to the Filshie clip initiated by a single U.S. law firm[66] - The company does not expect the outcome of the Filshie clip litigation to be material to its consolidated financial results[66] Risk Factors Directs investors to detailed risk factors in the 2022 10-K, highlighting regulatory burdens, GPOs, product liability, and foreign currency risks - Investors are advised to consider the detailed risk factors in the Annual Report on Form 10-K for the year ended December 31, 2022[67] - Key risks include increasing regulatory burdens, the influence of Group Purchasing Organizations (GPOs), and legislative interference in the U.S. healthcare marketplace[68][69][70] - Other risks involve reliance on third-party distributors, potential product liability lawsuits, loss of key employees, and fluctuations in foreign currencies[73][74][75][76] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any of its own securities during Q1 2023, contrasting with 2022 share repurchases - The company did not purchase any of its own securities during Q1 2023[77] - In 2022, the company repurchased 30,105 shares at an average price of $82.88 per share[77] Exhibits Lists exhibits filed with the Form 10-Q, including CEO/PFO certifications and financial statements in iXBRL format - The report includes CEO and Principal Financial Officer certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906[78] - Financial information is provided in iXBRL format, including balance sheets, income statements, cash flow statements, statements of stockholders' equity, and related notes[78] Signatures Signatures The Form 10-Q report was duly authorized and signed on May 5, 2023, by the CEO and Principal Financial Officer - The report was signed on behalf of the registrant, Utah Medical Products, Inc[80][81] - Signatories are Kevin L. Cornwell (CEO) and Brian L. Koopman (Principal Financial Officer), with the date of signature being May 5, 2023[82]