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 2022 compared to the same periods of 2021 were as follows: 3Q 2022 3Q 2021 change 9M 2022 9M 2021 change Net Sales$ 12,955 $ 12,572 3.0%$ 38,707 $ 36,140 7.1% Gross Profit 8,186 8,073 1.4% 23,869 22,804 4.7% Operating Income 5,141 5,098 0.8% 14,720 13,750 7.1% Income Before Tax 5,339 5,157 3.5% 15,068 13,880 8.6% Net Income (NI) 4,280 4,206 1.8% 11,918 10,656 11.8%
Earnings per Diluted Share (EPS) 1.178 1.150 2.4% 3.265 2.915 12.0%
Worldwide consolidated revenues were higher for all four major product categories in 3Q 2022 compared to 3Q 2021, despite a much stronger USD. The same was true for 9M 2022, except for gynecology category sales which were less than 1% lower than in 9M 2021. Sales invoiced in foreign currencies represented 19% of total WW consolidated 3Q 2022 sales (when expressed in USD) and 24% of 9M 2022 total WW consolidated sales.
Using the same foreign currency exchange (FX) rates for converting foreign currency sales into USD would have resulted in 3Q 2022 sales up 6%, and 9M 2022 sales up 10%, compared to the same periods in 2021 respectively.
UTMD profit margins in 3Q 2022 and 9M 2022 compared to the same periods in the prior year follow: 3Q 2022 3Q 2021 9M 2022 9M 2021 (Jul - Sep) (Jul - Sep) (Jan - Sep) (Jan - Sep) Gross Profit Margin: 63.2% 64.2% 61.7% 63.1% (gross profit/ sales) Operating Income Margin: 39.7% 40.6% 38.0% 38.0% (operating income/ sales) Net Income Margin: 33.0% 33.5% 30.8% 29.5% (profit after taxes/ sales)
During 3Q 2022, the Company continued to realize substantial increases in manufacturing costs, highlighted by incoming freight on raw materials which doubled compared to 2021. Part of the large increase in freight costs is due to UTMD's decision to purchase larger quantities of raw materials in order to hedge against continuing high cost inflation, minimize risk of disruption from unpredictable supplier performance and gain available quantity discounts.
Thankfully, UTMD's cash position supports this sort of longer-term decision.
Although UTMD has lost almost no production capacity in 2022 as a result of
COVID-19 infections in its workforce, the effect of government policies and
spending during the pandemic which resulted in limited willing workers continues
to linger. The war in
Although UTMD's gross profit margin has been squeezed, the same 38% operating income margin in 9M 2022 as in 9M 2021 suggests that management has been able to respond to the challenge of the negative headwinds. In this instance, a stronger USD helped by reducing foreign currency operating expenses in USD terms, including the GBP amortization of Identifiable Intangible Assets (IIA). The unfortunate increase in UTMD's litigation costs, which are part of General and Administrative (G&A) operating expenses, has been offset by UTMD's inability in 2022 to hire replacements for departed G&A employees.
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Income before tax (EBT) increased more than operating income increased as a
result of higher interest rates on higher average cash balances as well as
higher rent income in
Foreign currency exchange (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 3Q 2022 compared to the end of calendar year 2021 and the end of 3Q 2021 follow:
9-30-22 12-31-21 Change9-30-21 ChangeGBP 1.11303 1.35358 (17.8%) 1.34676 (17.4%)EUR 0.97878 1.13765 (14.0%) 1.15770 (15.5%) AUD 0.64366 0.72678 (11.4%) 0.72284 (11.0%)CAD 0.72722 0.79016 (8.0%) 0.78908 (7.8%)
UTMD's
b)Revenues (sales)
Terms of sale are established in advance of UTMD's acceptance of customer
orders. For 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 or less. 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 is not inconsistent with UTMD's disclosure that the selling price is fixed prior to the acceptance of a specific customer order.
Total UTMD WW consolidated 3Q 2022 sales were
Domestic
Domestic sales are invoiced in USD and not subject to FX rate fluctuations. The
components of domestic sales include 1) "direct other device sales" of UTMD's
medical devices to user facilities (and med/surg stocking distributors for
hospitals), excluding Filshie device sales, 2) "OEM sales" of components and
other products manufactured by UTMD for other medical device and non-medical
device companies, and 3) "direct Filshie device sales". UTMD separates Filshie
device sales from other medical device sales direct to medical facilities
because of their significance, and the acquisition history. Direct other device
sales, representing 47% of total domestic sales, were
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OUS sales in 3Q 2022 were 10.0% lower at
3Q 2022 3Q 2021 ChangeGBP 1.1760 1.3785 (14.7%)EUR 1.0040 1.1793 (14.9%) AUD 0.6828 0.7348 (7.1%)CAD 0.7663 0.7941 (3.5%)
The weighted average unfavorable impact on 3Q 2022 foreign currency OUS sales
was 12.4%, reducing reported USD sales by
OUS sales invoiced in foreign currencies are due to direct end-user sales in
Direct to end-user foreign currency OUS 3Q 2022 sales in USD terms were 4.9%
lower in
Total 9M 2022 UTMD WW consolidated sales were
Domestic
Direct other device sales, representing 49% of total domestic sales, were
OUS sales in 9M 2022 were 5.1% higher at
9M 2022 9M 2021 ChangeGBP 1.2488 1.3860 (9.9%)EUR 1.0672 1.1957 (10.7%) AUD 0.7058 0.7584 (6.9%)CAD 0.7797 0.7985 (2.3%)
The weighted-average unfavorable impact on 9M 2022 foreign currency OUS sales
was 9.4%, reducing reported USD sales by
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.
UTMD segments sales into the following general product categories: gynecology/ electrosurgery, labor & delivery, neonatal critical care, and miscellaneous including blood pressure monitoring kits and accessories as well as related OEM products.
In 3Q 2022 compared to 3Q 2021, WW gynecology/ electrosurgery sales were up 3%, WW neonatal device sales were up 11%, WW labor & delivery device sales were up 2%, and WW blood pressure monitoring and related OEM product sales were up 1%.
In 9M 2022 compared to 9M 2021, WW gynecology/ electrosurgery device sales were
less than 1% lower, WW labor & delivery device sales were up 3%, WW neonatal
device sales were up 15% and WW blood pressure monitoring and related OEM
product sales were up 16%. The 9M 2022 increases were after losing
The following table provides USD sales amounts divided into general product categories for total sales and the subset of OUS sales:
Global 3Q 2022 revenues (USD) by product category:
Domestic Outside US Total Labor & Delivery$ 1,115 $ 153 $ 1,268 Gynecology/Electrosurgery/Urology 2,724 2,981 5,705 Neonatal 1,514 312 1,826
Blood Pressure Monitoring and Accessories* 3,262 894 4,156 Total:
$ 8,615 $ 4,340 $ 12,955
Global 9M 2022 revenues (USD) by product category:
Domestic Outside US Total Labor & Delivery$ 3,045 $ 479 $ 3,524 Gynecology/Electrosurgery/Urology 7,699 8,531 16,230 Neonatal 4,610 1,002 5,612
Blood Pressure Monitoring and Accessories* 9,075 4,266 13,341 Total:
$ 24,429 $ 14,278 $ 38,707
*includes molded components sold to OEM customers.
Looking forward, UTMD expects that its 4Q 2022 and year 2023 organic device Revenues will continue to improve.
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c)Gross Profit
Gross Profit results from subtracting the costs of manufacturing, quality
assurance and receiving materials from suppliers from revenues. UTMD's Gross
Profit was
Variable manufacturing costs, including wages, raw materials and freight, all increased by double-digit percentages during 9M 2022, much more rapidly than UTMD's price increases. Fixed costs were diluted by higher sales. Over time, management expects that some of the 2022 cost increases will prove transient, and to be able to adjust Gross Profit Margin performance to be more consistent with UTMD's typical Gross Profit Margins of the past.
d)Operating Income
Operating Income results from subtracting Operating Expenses from Gross Profit. Operating Expenses, comprised of sales and marketing (S&M) expenses, product development (R&D) expenses and general and administrative (G&A) expenses, were 23.5% of sales in 3Q 2022 compared to 23.7% of sales in 3Q 2021. Operating Expenses were 23.6% of sales in 9M 2022 compared to 25.1% of sales in 9M 2021.
UTMD's tight control of Operating Expenses is a primary financial differentiation from other companies.
Comparison of (USD) consolidated Operating Expenses:
Category 3Q 2022 % of sales 3Q 2021 % of sales 9M 2022 % of sales 9M 2021 % of sales
S&M:
In the same way a stronger USD reduced consolidated USD sales in 2022, it also
reduced the USD-denominated Operating Expenses of UTMD's foreign subsidiaries by
Category 3Q 2022 const FX 3Q 2021 9M 2022 const FX 9M 2021 S&M:$ 383 $ 324 $ 1,090 $ 1,071 G&A: 2,680 2,524 7,956 7,598 R&D: 112 126 370 385 Total OE:$ 3,175 $ 2,974 $ 9,416 $ 9,054
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S&M expenses were higher in 3Q and 9M 2022 because of higher shipping costs in
the
R&D expenses varied only by specific project expenses. As almost all new
product development is being carried out in the
A division of G&A expenses by location follows. G&A expenses include non-cash expenses from the amortization of Identifiable Intangible Assets (IIA) associated with the Filshie Clip System, which is also separated out below:
G&A 3Q 2022 % of sales 3Q 2021 % of sales 9M 2022 % of sales 9M 2021 % of sales Expense Category IIA$ 467 3.6$ 548 4.4$ 1,497 3.9$ 1,654 4.6 Amort- UK: IIA 1,105 8.5 1,105 8.8 3,316 8.6 3,316 9.2 Amort- CSI: Other- 132 158 428 470 UK: Other- 710 550 2,018 1,663 US: IRE: 73 74 224 235 AUS: 39 48 124 136 CAN: 34 41 106 124 Total$ 2,560 19.8$ 2,524 20.1$ 7,713 19.9$ 7,598 21.0 G&A:
Over 60% of UTMD's consolidated G&A expenses in all periods above were from the
non-cash expense of amortizing IIA related to the Filshie Clip System. In other
words, G&A IIA amortization expense declined to 12.1% of sales in 3Q 2022 from
13.2% of sales in 3Q 2021; and similarly declined to 12.5% of sales in 9M 2022
from 13.8% of sales in 9M 2021. Fixed USD IIA amortization expense is diluted
as a percentage of sales as Revenues increase. The
OUS G&A expenses in USD terms were
G&A Expense Category 3Q 2022 const FX 3Q 2021 9M 2022 const FX 9M 2021 IIA Amort- UK:$ 548 $ 548 $ 1,653 $ 1,654 Other- UK: 155 158 475 470 IRE: 85 74 254 235 AUS: 42 48 132 136 CAN: 35 41 108 124 Total OUS G&A:$ 865 $ 869 $ 2,622 $ 2,619
In summary, Operating Income in 3Q 2022 was
Because of the significance of the IIA amortization expenses, and to remind
stockholders of the history, the initial IIA amount of the 2011 Femcare
The initial amount of IIA for the 2019 acquisition of 4.75 years' remaining
exclusive
rights from
The CSI IIA amortization expenses were the same in both years' 3Q and 9M periods.
Because the non-cash IIA amortization expenses represent a majority of UTMD's Operating Expenses, UTMD provides the following table that separates the IIA amortization expenses from all other Operating Expenses:
3Q 2022 3Q 2021 9M 2022 9M 2021 IIA amortization expense$ 1,573 $ 1,653 $ 4,813 $ 4,969 All other Operating expense 1,472 1,321 4,336 4,085 Total Operating Expenses:$ 3,045 $ 2,974 $ 9,149 $ 9,054
Percent of Sales: 3Q 2022 3Q 2021 9M 2022 9M 2021 IIA amortization expense 12.1% 13.2% 12.4% 13.8% All other G&A expense 11.4% 10.5% 11.2% 11.3% Total G&A Expenses: 23.5% 23.7% 23.6% 25.1%
Therefore, 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 3.5 more years to run at about
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 2022 was
Net non-operating income in 9M 2022 was
In 3Q 2022 losses from remeasurement of the value of foreign currency bank
balances were
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 2022 EBT was
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 2022 3Q 2021 Change 9M 2022 9M 2021 Change EBT$ 5,339 $ 5,157 +3.5%$ 15,068 $ 13,880 +8.6% Depreciation of fixed assets 152 157 454 483 Amortization of patent expenses 8 9 24 27 Amortization of Femcare IIA 467 548 1,497 1,653 Amortization of CSI distribution 1,105 1,105 3,316 3,316 agreement IIA Stock option compensation expense 38 41 121 123 Remeasured currency (gains) or 2 7 7 13
losses
Adjusted Consolidated EBITDA:
UTMD's non-US GAAP adjusted consolidated EBITDA as a percentage of sales was 54.9% in 3Q 2022 compared to 55.9% in 3Q 2021, reflecting the lower GPM.
Similarly, UTMD's non-US GAAP adjusted consolidated EBITDA as a percentage of
sales was 52.9% in 9M 2022 compared to 53.9% in 9M 2021. Based on 9M 2022 actual
operating results, management expects non-US GAAP adjusted consolidated EBITDA
of about
g)Net Income
Net Income is EBT minus a provision for income taxes. Net Income in 3Q 2022 of
Net Income in 9M 2022 of
The average consolidated income tax provisions (as a % of the same period EBT)
per US GAAP in 3Q 2022 and 3Q 2021 were 19.8% and 18.4% respectively, and were
20.9% and 23.2% in 9M 2022 and 9M 2021 respectively. Please recall that the 9M
2021 income tax provision was inflated by
The consolidated income tax provision rate varies as the mix in taxable income
among
UTMD management believes that the presentation of results excluding the unfavorable deferred tax liability adjustment to its 9M 2021 income tax provision provides meaningful supplemental information to both management and investors that is more clearly indicative of UTMD's operating results. The non-US GAAP exclusion only affects Net Income and Earnings Per Share.
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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 2022 were
The number of shares used for calculating 3Q 2022 EPS was higher than
The number of shares added as a dilution factor for 3Q 2022 was 9,220 compared
to 10,933 in 3Q 2021. The number of shares added as a dilution factor for 9M
2022 was 9,424 compared to 10,685 in 9M 2021. No options were awarded in 2021 or
through 9M 2022. No UTMD shares were purchased in the open market in 2021. In
2Q 2022, the Company purchased 30,105 UTMD shares at an average cost of
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 2022 was 12% compared to annualized ROE of 10% in 9M 2021. Before the payment of dividends, annualized ROE in 9M 2022 was 15% compared to 14% in 9M 2021. The higher ROE in 9M 2022 was due to a 1% increase in average accumulated stockholders' equity divided into a 12% increase in Net Income. Targeting a high ROE of 20% (before dividends) remains a key financial objective for UTMD management.
UTMD paid
UTMD's closing share price at the end of 3Q 2022 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 2022 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
Consolidated Current Assets alone increased
UTMD's
Working capital (Current Assets minus Current Liabilities) was
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) leverage distribution and manufacturing synergies by further integrating capabilities and resources in UTMD's multinational operations;
2) expand manufacturing capacity at a time when resources are particularly scarce;
3) focus on effectively differentiating the benefits of the Filshie Clip System
in the
4) introduce additional products helpful to clinicians through internal product development;
5) continue to achieve excellent overall financial operating performance;
6) 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
7) remain vigilant for affordable accretive acquisition opportunities which may be brought about by difficult burdens on small, innovative companies.
Despite continuing economic challenges created by government reaction to the COVID-19 pandemic, especially including hyperinflation in costs and lack of availability of quality workers, the Company continues to effectively execute its 2022 plan as outlined above.
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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