General
Currency amounts in the report are in thousands, except per share amounts or
where otherwise noted. Currencies in this report are denoted as $ or USD =
Analysis of Results of Operations
a)Overview Income statement results in 3Q and 9M 2021 compared to the same periods of 2020 were as follows: 3Q 2021 3Q 2020 change 9M 2021 9M 2020 change Net Sales$ 12,572 $ 10,479 20.0%$ 36,140 $ 30,168 19.8% Gross Profit 8,073 6,497 24.3% 22,804 18,283 24.7% Operating Income 5,098 3,588 42.1% 13,750 9,428 45.8% Income Before Tax 5,157 3,588 43.7% 13,880 9,553 45.3% Net Income (NI) 4,206 2,933 43.4% 10,656 7,386 44.3%
Earnings per Diluted Share (EPS) 1.150 0.803 43.2% 2.915 2.008 45.2%
Income statement results in 3Q and 9M 2021 compared to the same periods of 2019 were as follows: 3Q 2021 3Q 2019 change 9M 2021 9M 2019 change Net Sales$ 12,572 $ 12,494 0.6%$ 36,140 $ 35,073 3.0% Gross Profit 8,073 7,379 9.4% 22,804 21,652 5.3% Operating Income 5,098 4,371 16.6% 13,750 12,954 6.2% Income Before Tax 5,157 4,448 16.0% 13,880 13,150 5.6% Net Income (NI) 4,206 3,705 13.5% 10,656 10,369 2.8%
Earnings per Diluted Share (EPS) 1.150 0.991 16.0% 2.915 2.774 5.1%
UTMD profit margins in 3Q 2021 and 9M 2021 compared to the same periods in the prior two years follow: 3Q 2021 3Q 2020 3Q 2019 9M 2021 9M 2020 9M 2019 (Jul - Sep) (Jul - Sep) (Jul - Sep) (Jan - Sep) (Jan - Sep) (Jan - Sep) Gross Profit 64.2% 62.0% 59.1% 63.1% 60.6% 61.7% Margin: (gross profit/ sales) Operating 40.6% 34.2% 35.0% 38.0% 31.3% 36.9% Income Margin: (operating income/ sales) Net Income 33.5% 28.0% 29.7% 29.5% 24.5% 29.6% Margin: (profit after taxes/ sales)
Gross Profit in 2021 periods increased more than sales primarily as a result of greater absorption of fixed manufacturing overhead expenses. Because UTMD believed that lower 2020 sales were transitory, and that it could remain profitable even at the lower sales levels experienced during the pandemic, 2021 results benefited from having the resources the Company needed in 2021 to support the higher sales activity.
Operating Income increased substantially more than the Gross Profit increase in both 2021 periods because UTMD's non-cash identifiable intangible asset (IIA) amortization expense included in operating expenses was relatively fixed (except for foreign exchange rate difference on GBP), and therefore enjoyed better absorption from higher sales. IIA amortization expense was 13.1% of 3Q 2021 sales compared to 15.5% of 3Q 2020 sales, and 13.8% of 9M 2021 sales compared to 16.0% of 9M 2020 sales.
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Income before tax (EBT) increased slightly differently from the increases in operating income as a result of small differences in period-to-period non-operating income, as explained later in this report. Similarly, Net Income increased slightly differently from the increase in EBT as a result of the sovereignty mix of taxable profits in 2021 compared to 2020.
UTMD's FX rates for balance sheet purposes are the applicable rates at the end
of each reporting period. The FX rates from the applicable foreign currency to
USD for assets and liabilities at the end of
Sep 30, 2021 Sep 30, 2020 ChangeGBP 1.347 1.292 +4.3%EUR 1.158 1.172 (1.3%) AUD 0.723 0.716 +0.9%CAD 0.789 0.751 +5.1%
UTMD's
b)Revenues
Terms of sale are established in advance of UTMD's acceptance of customer
orders. In the
UTMD may have separate discounted pricing agreements with a specific clinical facility or group of affiliated facilities based on volume of purchases.
Pricing agreements which are documented arrangements with clinical facilities, or groups of affiliated facilities, if applicable, are established in advance of orders accepted or shipments made. For existing customers, past actual shipment volumes typically determine the fixed price by part number for the next agreement period of one year. For new customers, the customer's best estimate of volume is usually accepted by UTMD for determining the ensuing fixed prices for the agreement period. Prices are not adjusted after an order is accepted. For the sake of clarity, the separate pricing agreements with clinical facilities based on volume of purchases disclosure is not inconsistent with UTMD's disclosure that the selling price is fixed prior to the acceptance of a specific customer order.
Total consolidated 3Q 2021 UTMD sales were
In 3Q 2021 compared to 3Q 2020,
Domestic sales in 3Q 2021 were
Domestic direct sales in 3Q 2021 excluding Filshie devices, representing 48% of
total domestic sales, were
OUS sales in 3Q 2021 were
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UTMD subsidiary direct domestic sales in
3Q 21 3Q 20 Change 9M 21 9M 20 ChangeGBP 1.379 1.295 +6.5% 1.386 1.279 +8.3%EUR 1.179 1.173 +0.6% 1.196 1.128 +6.0% AUD 0.735 0.714 +2.9% 0.758 0.677 +12.0%CAD 0.794 0.751 +5.7% 0.798 0.745 +7.2%
The volatility of FX rates for OUS sales when consolidated in USD terms
continues to impact period-to-period relative financial results because of
UTMD's significant percentage of foreign currency sales. Foreign currency
revenues in 3Q 2021 were increased by
Foreign currency OUS sales were more affected by the pandemic in 2020 than USD
sales. Foreign currency OUS sales in 3Q 2021 were
UTMD segments sales into the following general product categories: gynecology/ electrosurgery, labor & delivery, neonatal, and miscellaneous including blood pressure monitoring kits and accessories as well as related OEM products.
In 3Q 2021 compared to 3Q 2020, worldwide gynecology/ electrosurgery and neonatal device sales were both up 10%, worldwide labor & delivery device sales were 3% lower, and worldwide blood pressure monitoring and related OEM product sales were up 55%. In 9M 2021 compared to 9M 2020, worldwide gynecology/ electrosurgery device sales were up 12%, worldwide labor & delivery device sales were up 2%, worldwide neonatal device sales were up 10% and worldwide blood pressure monitoring and related OEM product sales were up 48%. Medical facility procedures in L&D and the NICU during the 2020 pandemic did not decline as much as procedures utilizing devices in the gynecology/ electrosurgery category.
The following table provides USD sales amounts divided into general product categories for total sales and the subset of OUS sales:
Global 3Q 2021 revenues (USD) by product category:
Domestic Outside US Total Obstetrics$ 1,014 $ 232 $ 1,246 Gynecology/Electrosurgery/Urology 2,743 2,815 5,558 Neonatal 1,336 312 1,648
Blood Pressure Monitoring and Accessories* 2,656 1,464 4,120 Total:
$ 7,749 $ 4,823 $ 12,572
Global 9M 2021 revenues (USD) by product category:
Domestic Outside US Total Obstetrics$ 2,864 $ 559 $ 3,423 Gynecology/Electrosurgery/Urology 8,229 8,130 16,359 Neonatal 3,813 1,064 4,877
Blood Pressure Monitoring and Accessories* 7,649 3,832 11,481 Total:
$ 22,555 $ 13,585 $ 36,140
*includes molded components sold to OEM customers.
Looking forward, UTMD expects that its 4Q 2021 and year 2022 organic device sales will continue to improve.
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c)Gross Profit
Gross Profit results from subtracting the costs of manufacturing products,
including relatively fixed critical mass of overhead expenses associated with
quality assurance, engineering and supervision, from revenues. Gross Profit was
d)Operating Income
Operating Income results from subtracting Operating Expenses from Gross Profit. Operating Expenses, comprised of general and administrative (G&A) expenses, sales and marketing (S&M) expenses and product development (R&D) expenses, were 23.7% of sales in 3Q 2021 compared to 27.8% of sales in 3Q 2020. Operating Expenses were 25.1% of sales in 9M 2021 compared to 29.4% of sales in 9M 2020. The operating expense percentage of sales declined in 3Q 2021 as a result of expenses increasing only 2.3% when sales increased 20.0%, and in 9M 2021 when Operating Expense increased only 2.2% when sales increased 19.8%.
Summary comparison of (USD) consolidated operating expenses:
3Q 2021 3Q 2020 9M 2021 9M 2020 S&M Expense$ 324 $ 352 $ 1,071 $ 1,195 R&D Expense 126 125 385 375 G&A Expense 2,524 2,432 7,598 7,285
Total Operating Expenses:
A weaker USD helped increase consolidated USD sales in 2021, but it also helped
increase the USD-denominated operating expenses of UTMD's foreign subsidiaries
by
3Q 2021 3Q 2020 9M 2021 9M 2020 const FX const FX S&M Expense$ 321 $ 352 $ 1,049 $ 1,195 R&D Expense 126 125 384 375 G&A Expense 2,478 2,432 7,400 7,285
Total Operating Expenses:
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The following lower operating expense ratios in 2021 were essentially due to higher sales, rather than the change in actual expenses.
S&M expenses were 2.6% of sales in 3Q 2021 and 3.4% of sales in 3Q 2020. S&M expenses were 3.0% of sales in 9M 2021 compared to 4.0% of sales in 9M 2020.
Somewhat lower actual S&M expenses were due primarily to one less sales person
in the
R&D expenses were 1.0% of sales in 3Q 2021 compared to 1.2% of sales in 3Q 2020.
R&D expenses in 9M 2021 were 1.1% of sales compared to 1.2% of sales in 9M 2020. R&D expenses varied only by specific project expenses.
Consolidated G&A expenses were 20.1% of sales in 3Q 2021 compared to 23.2% of
sales in 3Q 2020. Consolidated G&A expenses were 21.0% of sales in 9M 2021
compared to 24.2% of sales in 9M 2020. G&A expenses included non-cash expense
from the amortization of IIA resulting from the
The initial amount of IIA for the 2011 Femcare
The initial amount of IIA for the 2019 acquisition of 4.75 years' remaining
exclusive
Because the IIA amortization expenses represent a significant portion of UTMD's G&A expenses, UTMD provides the following table that separates the IIA amortization expenses from all other G&A expenses:
3Q 2021 3Q 2020 9M 2021 9M 2020
IIA amortization expense
Percent of Sales: 3Q 2021 3Q 2020 9M 2021 9M 2020 IIA amortization expense 13.1% 15.5% 13.7% 16.0% All other G&A expense 7.0% 7.7% 7.3% 8.1% Total G&A Expenses: 20.1% 23.2% 21.0% 24.1%
Eventually, when the two Filshie-related IIA balances are fully amortized,
stockholders can look forward to a substantial increase in EBT. The Femcare
acquisition IIA amortization expense has 4.5 more years to run at about
Other G&A expenses were higher in both periods primarily because UTMD's CEO took 50% salary in 2020, and 2021 employee profit-sharing bonuses based on the projected 2021 annual EBT have been accrued at a higher rate than in 2020.
In summary, Operating Income in 3Q 2021 was
e)Non-operating expense/ Non-operating income
Non-operating expense includes 1) bank fees; 2) losses from remeasuring the
value of EUR cash bank balances in the
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UTMD's net non-operating income in 3Q 2021 was
In 3Q 2021 and 3Q 2020, losses from remeasurement of the value of foreign
currency bank balances were negligible in both periods. In 9M 2021, UTMD
recognized a
f)Income Before Income Taxes (EBT)
EBT results from subtracting net non-operating expense or adding net
non-operating income from or to, as applicable, Operating Income. Consolidated
3Q 2021 EBT was
The EBT of UTMD's manufacturing subsidiaries varies as a result of intercompany shipments which are eliminated in the consolidation of results.
EBITDA is a non-US GAAP metric that UTMD management believes is of interest to
investors because it provides meaningful supplemental information to both
management and investors that represents profitability performance without
factoring in effects of financing, accounting decisions regarding non-cash
expenses, capital expenditures or tax environments. Although the
Component of EBITDA 3Q 2021 3Q 2020 Change 9M 2021 9M 2020 Change EBT$ 5,157 $ 3,588 +43.7%$ 13,880 $ 9,553 +45.3% Depreciation of fixed assets 157 160 483 495 Amortization of patent expenses 9 12 27 37 Amortization of Femcare IIA 548 517 1,653 1,523 Amortization of CSI distribution 1,105 1,105 3,316 3,316 agreement IIA Stock option compensation expense 41 49 123 121 Remeasured currency (gains) or 7 2 13 (41)
losses
Adjusted Consolidated EBITDA:
Management believes that the non-US GAAP EBITDA improvement is more indicative of UTMD's recovery from the COVID-19 negative impact on UTMD's 2020 operating results than the change represented by EBT.
g)Net Income
Net Income is EBT minus a provision for income taxes. Net Income in 3Q 2021 was
Net Income in 9M 2021 was
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h)Earnings Per Share (EPS)
EPS are consolidated Net Income divided by the number of shares of stock outstanding (diluted to take into consideration stock option awards which are "in the money," i.e., have exercise prices below the applicable period's weighted average market value).
Diluted EPS in 3Q 2021 were
Diluted shares were 3,657,733 in 3Q 2021 compared to 3,653,500 in 3Q 2020, and
3,656,255 in 9M 2021 compared to 3,678,210 in 9M 2020. The differences in
diluted shares resulted from employee option exercises, shares repurchased
during 2020, an employee option award in 2020, and the time-weighted calculation
of outstanding shares and options "in the money" at an average applicable period
stock price. The number of shares added as a dilution factor in 3Q 2021 was
10,933 compared to 11,130 in 3Q 2020. The number of shares added as a dilution
factor in 9M 2021 was 10,685 compared to 14,514 in 9M 2020. In
Outstanding shares at the end of 3Q 2021 were 3,648,984 compared to 3,643,035 at
the end of calendar year 2020. The difference was due to employee option
exercises of 5,949 shares during 9M 2021. Outstanding shares were 3,640,371 one
year ago at the end of 3Q 2020. The number of shares used for calculating
diluted EPS was higher than ending shares because of a time-weighted calculation
of average outstanding shares plus dilution from unexercised employee and
director options. The total number of outstanding unexercised employee and
outside director options at
UTMD distributed
i) Return on Stockholder Equity (ROE) and Stock Value
ROE is the portion of Net Income retained by UTMD to internally finance its growth, divided by the average accumulated stockholders' equity for the applicable time period. After payment of cash dividends to stockholders, annualized ROE in 9M 2021 was 10% compared to annualized ROE of 6% in 9M 2020. Before the payment of dividends, annualized ROE in 9M 2021 was 14% compared to 10% in 9M 2020. The higher ROE in 9M 2021 was due to a 7% increase in average accumulated stockholders' equity together with a 44% decrease in Net Income. Targeting a high ROE of 20% (before dividends) remains a key financial objective for UTMD management.
UTMD's closing share price at the end of 3Q 2021 was
Liquidity and Capital Resources
j)Cash flows
Net cash provided by operating activities, including adjustments for
depreciation and amortization and other non-cash expenses along with changes in
working capital, totaled
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Capital expenditures for property and equipment (PP&E) were
UTMD made cash dividend payments of
In 9M 2021 the Company received
Management believes that current cash balances, income from operations and effective management of working capital will provide the liquidity needed to finance internal growth plans. The Company may utilize cash not needed to support normal operations in one or a combination of the following: 1) in general, to continue to invest at an opportune time in ways that will enhance future profitability; 2) to make additional investments in new technology and/or processes; and/or 3) to acquire a product line or company that will augment revenue and EPS growth and better utilize UTMD's existing infrastructure. If there are no better strategic uses for UTMD's cash, the Company will continue to return cash to stockholders in the form of dividends and share repurchases when the stock appears undervalued.
k)Assets and Liabilities
UTMD's
Working capital (current assets minus current liabilities) was
Consolidated receivables and inventories increased
The long term deferred tax liability (DTL) balance for Femcare IIA (
UTMD's total debt ratio (total liabilities/ total assets) as of
The
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l)Management's Outlook
As outlined in its
1) exploit distribution and manufacturing synergies by further integrating capabilities and resources in its multinational operations;
2) focus on effective direct marketing of the benefits of the Filshie Clip
System in the
3) introduce additional products helpful to clinicians through internal new product development;
4) continue to achieve excellent overall financial operating performance;
5) utilize positive cash generation to continue providing cash dividends to stockholders and make open market share repurchases if/when the UTMD share price seems undervalued; and
6) be vigilant for accretive acquisition opportunities which may be brought about by difficult burdens on small, innovative companies.
The Company has recovered better than expected from the COVID-19 pandemic, exceeding targeted 2019 financial performance prior to the pandemic.
m)Accounting Policy Changes None
Forward-Looking Information. This report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by management based on information currently available. When used in this document, the words "anticipate," "believe," "project," "estimate," "expect," "intend" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company respecting future events and are subject to certain risks, uncertainties and assumptions, including the risks and uncertainties stated throughout the document. Although the Company has attempted to identify important factors that could cause the actual results to differ materially, there may be other factors that cause the forward statement not to come true as anticipated, believed, projected, expected, or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those described herein as anticipated, believed, projected, estimated, expected or intended. Financial estimates are subject to change and are not intended to be relied upon as predictions of future operating results, and the Company assumes no obligation to update or disclose revisions to those estimates.
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