via NewMediaWire --For the third calendar quarter (3Q) and
first nine months (9M) of 2020, Utah Medical Products, Inc.
(Nasdaq: UTMD) reports financial results described by CEO Kevin
Cornwell as follows,
“As stockholders know, the desire to preserve
capacity for treating patients with COVID-19 led to suspending many
hospital medical procedures. As a result, UTMD began to
experience lower demand for its specialty medical devices in March
during 1Q 2020. As the largest segment of UTMD’s
revenues in recent years has been in gynecology procedures deemed
‘nonessential’ such as tubal ligation and loop excision of the
transformation zone, UTMD sales dropped precipitously in 2Q
2020.
"My view is that comparisons of 3Q and 9M 2020
results with the same periods in the prior year represent the
magnitude of a revenue hole that UTMD fell into caused by COVID-19
management policies, not a fundamental trend. The trend which may
be of more interest and cause for optimism is a comparison of
successive quarterly revenues during 2020. In this
report, in addition to comparing with the prior year’s same time
periods, which identify the ‘COVID-19 hole’, UTMD also presents
2020 successive quarterly sales by channel and product
group. In summary, 3Q 2020 U.S. domestic sales
substantially recovered from 2Q 2020. Although sales outside
the U.S. (OUS) have been slower to recover, they nevertheless were
significantly higher in 3Q 2020 than in the dismal 2Q 2020. Unless
governments again restrict medical care, we see the recovery trend
continuing to be positive, so that 4Q 2020 is likely to be UTMD’s
best revenue quarter of the year.”
Currencies in this release are denoted as $ or USD
= U.S. Dollars; AUD = Australia Dollars; £ or GBP = UK Pound
Sterling; C$ or CAD = Canadian Dollars; and € or EUR = Euros.
Currency amounts throughout this report are in thousands, except
per share amounts and where noted.
Summary of Financial ResultsUTMD management
believes that the presentation of sequential 2020 quarterly results
provides meaningful supplemental information to both management and
investors. Keeping in mind that results for any given
three month period in comparison with a previous three month period
may not be indicative of comparative results for the year as a
whole, the following table shows the percent changes in 2020
quarterly results compared to the same periods of time in 2019:
Revenues [USD denominated] |
1Q |
2Q |
3Q |
9M |
U.S. domestic (excluding OEM) |
+ 14.5% |
(29.1%) |
(8.0%) |
( 9.2%) |
Canada domestic |
(21.7%) |
(62.9%) |
( 5.6%) |
(32.0%) |
Ireland domestic |
(26.2%) |
(48.6%) |
(18.1%) |
(30.9%) |
UK domestic |
(11.2%) |
(72.8%) |
(34.4%) |
(38.7%) |
France domestic |
(11.8%) |
(72.1%) |
(12.3%) |
(32.6%) |
Australia domestic |
( 8.6%) |
(43.0%) |
(13.6%) |
(22.0%) |
Subtotal, Direct to End User: |
+4.2% |
(39.1%) |
(11.1%) |
(16.3%) |
All Other OUS (Sales to Int’l Distributors) |
( 5.2%) |
( 4.5%) |
(34.7%) |
(15.6%) |
U.S. OEM Sales |
+ 0.7% |
+ 9.5% |
( 8.9%) |
( 0.6%) |
Worldwide Revenues |
+ 1.6% |
(25.8%) |
(16.1%) |
(14.0%) |
UTMD subsidiary direct domestic sales in Canada,
Ireland, the United Kingdom, France and Australia are invoiced in
foreign currencies. Foreign currency exchange (FX) rates for income
statement purposes are transaction-weighted averages. The average
rates from the applicable foreign currency to USD during 3Q 2020
and 9M 2020 compared to the same periods in 2019 follow:
|
3Q 20 |
3Q 19 |
Change |
9M 20 |
9M 19 |
Change |
GBP |
1.295 |
1.233 |
+ 5.0% |
1.279 |
1.273 |
+ 0.5% |
EUR |
1.173 |
1.108 |
+ 5.8% |
1.128 |
1.123 |
+ 0.4% |
AUD |
0.714 |
0.687 |
+ 4.0% |
0.677 |
0.700 |
( 3.3%) |
CAD |
0.751 |
0.758 |
( 0.8%) |
0.745 |
0.752 |
( 1.0%) |
Although 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, the FX rate impact in 9M 2020 was less
significant than in the recent past. Except for the CAD FX rate
which had not changed as significantly as other currencies, a
healthy 3Q 2020 decline in the USD offset its strengthening during
the first half of the year. Foreign currency revenues in 3Q 2020
were increased by $85 as a result of a weaker USD compared to 3Q
2019. In contrast, the difference in period-to-period FX
rates reduced revenues by $36 in 9M 2020. Foreign
currency sales as a percentage of total sales were 21.0% of total
sales in 3Q 2020 and 22.0% of total sales in 9M
2020. UTMD’s 3Q 2019 and 9M 2019 revenues invoiced in
foreign currencies represented 23.6% and 27.2% of total
consolidated USD sales respectively.
Other factors that affected period-to-period
revenue comparisons included
- International distributors’ quarter-to-quarter orders
fluctuate more than domestic end user orders.
- 1Q 2019 was a partial quarter of U.S. domestic Filshie
Clip System (Filshie device) sales, as the UTMD acquisition of the
Cooper Surgical Inc (CSI) exclusive Filshie device distribution
rights took effect February 1, 2019.
UTMD profit margins in 3Q 2020 and 9M 2020
compared to 3Q 2019 and 9M 2019 follow:
|
3Q 2020 (Jul – Sep) |
3Q 2019(Jul – Sep) |
9M 2020(Jan – Sep) |
9M 2019(Jan – Sep) |
Gross Profit Margin (gross profits/ sales): |
62.0% |
59.1% |
60.6% |
61.7% |
Operating Income Margin (operating profits/ sales): |
34.2% |
35.0% |
31.3% |
36.9% |
Net Income Margin (profit after taxes/ sales): |
28.0% |
29.7% |
25.2% |
29.6% |
For the following income statement categories, the
above profit margins together with changes in revenues translated
into sequential 2020 quarterly percentage changes compared to the
same periods in 2019:
Consolidated Income Statement |
1Q |
2Q |
3Q |
9M |
Worldwide Revenues |
+ 1.6% |
(25.8%) |
(16.1%) |
(14.0%) |
Gross Profit |
+ 0.9% |
(34.0%) |
(12.0%) |
(15.6%) |
Operating Income |
( 5.8%) |
(55.9%) |
(17.9%) |
(27.2%) |
Earnings Before Income Tax |
( 3.6%) |
(56.7%) |
(19.3%) |
(27.4%) |
Net Income |
- |
(62.8%) |
(20.8%) |
(28.8%) |
Earnings Per Share |
- |
(62.0%) |
(19.0%) |
(27.6%) |
In the following income statement summary, please
refer to the right two columns in the table just above for a
comparison of 3Q 2020 and 9M 2020 income statement results with the
same periods in 2019. More detail is provided later in
this report.
Gross Profit in 3Q 2020 declined less than the
sales decline primarily as a result of sales mix. The 9M 2020 gross
profit margin (GPM), gross profit divided by sales, was lower than
in 9M 2019 despite the better 3Q GPM because 14% lower sales during
9M 2020 absorbed marginally less of UTMD’s fixed critical mass of
manufacturing overhead. Because UTMD believes that the lower sales
are transitory, knows it can remain very profitable even at the
lower sales levels experienced during the pandemic and has a
significant cash reserve relative to operational needs, management
will not cut important resources and sacrifice future capabilities
just to maintain short term profit margins.
Operating Income declined more than gross profit
in both 3Q 2020 and 9M 2020 because UTMD’s non-cash identifiable
intangible asset (IIA) amortization expense included in operating
expenses was 15.5% of sales in 3Q 2020 compared to 12.8% of sales
in 3Q 2019, and 16.0% in 9M 2020 compared to 12.7% in 9M
2019. This was due not only to the lower sales in 2020
(less absorption of a fixed expense) but also the GBP FX rate
difference in the 3Q and the timing of beginning the CSI IIA
amortization in 2019.
Earnings before tax (EBT) declined more than
operating income simply because UTMD did not receive interest on
its cash balances in 2020 like it did in 2019, although average
cash balances were about 20% higher during 9M 2020. Net Income
declined slightly more than EBT as a result of the sovereignty mix
of taxable profits in 2020 compared to 2019. The lowest
tax regimes of Ireland and the UK had the greatest declines in EBT.
Finally, Earnings Per Share (EPS) declined less than net income as
a result of the benefit of share repurchases in 2020.
UTMD’s FX rates for balance sheet purposes are the
applicable rates at the endof each reporting period. The FX
rates from the applicable foreign currency to USD for assets and
liabilities at the end of September 2020 and the end of September
2019
follow: Sep
30, 2020 Sep 30,
2019 Change GBP 1.292 1.230 +
5.0% EUR 1.172 1.091 +
7.5% AUD 0.716 0.675 +
6.1% CAD 0.751 0.755 (
0.6%)
UTMD’s September 30, 2020 Balance Sheet remained
strong with an absence of debt. During 2020, inventories declined
$0.6 million despite much lower sales, which is an indication of
good manufacturing planning and control. Due to the increase in
value of the GBP, EUR and AUD noted above, despite depreciation of
fixed assets, the USD net book value of fixed assets in the UK,
Ireland and Australia increased $0.6 million as of September 30,
2020 from September 30, 2019. Over the one year period of time, the
intangible asset balance declined $5.5 million, about
12%. Ending cash and investments were $46.3 million on
September 30, 2020 compared to $42.8 million on December 31, 2019,
after paying $3.1 million in cash dividends to stockholders and
repurchasing $7.0 million in UTMD stock during 9M
2020. After reducing stockholders’ equity a combined
$10.1 million in 9M 2020 stockholder dividends and share
repurchases, September 30, 2020 stockholders’ equity was down only
$2.7 million from December 31, 2019.
Sales Total consolidated 3Q 2020 UTMD
sales were $2,016 (16.1%) lower than in 3Q 2019. Constant currency
sales were $2,101 (16.8%) lower. Total consolidated 9M 2020 UTMD
sales were $4,905 (14.0%) lower than in 9M
2019. Constant currency sales in 9M 2020 were $4,869
(13.9%) lower than in 9M 2019.
In 3Q 2020 compared to 3Q 2019, U.S. domestic
sales were 8% lower and OUS sales were 28%
lower. In 9M 2020 compared to 9M 2019, U.S.
domestic sales were 7% lower and OUS sales were 23%
lower.
Domestic sales in 3Q 2020 were $6,950 compared to
$7,575 in 3Q 2019. Domestic sales in 9M 2020 were $18,906
compared to $20,366 in 9M 2019. The components of
domestic sales include 1) “direct sales” of UTMD’s medical devices
to user facilities (and med/surg stocking distributors for
hospitals), excluding Filshie Clip System (“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) Filshie device sales direct to U.S. medical facilities starting
in February 2019. Domestic direct sales in 3Q 2020
excluding Filshie devices, representing 50% of total domestic
sales, were $178 (5%) lower than in 3Q 2019. Domestic
direct sales in 9M 2020 excluding Filshie devices, representing 51%
of total domestic sales, were $1,078 (10%) lower than in 9M 2019.
OEM sales in 3Q 2020, representing 25% of total domestic sales,
were $172 (9%) lower than in 3Q 2019. OEM sales in 9M 2020, also
representing 25% of total domestic sales, were $27 (1%) lower than
in 9M 2019. Filshie device sales direct to U.S. domestic end-user
facilities were $275 (14%) lower in 3Q 2020 compared to sales in 3Q
2019. Filshie device sales direct to U.S. domestic
end-user facilities were $355 (7%) lower in 9M 2020 compared to
Filshie device sales in 9M 2019. Because Filshie device
sales are a significant portion of UTMD’s domestic business and a
UTMD device most affected by the COVID-19 pandemic, management
believes the following table might help to see the overall 2020
pandemic impact and recovery trend:
Filshie device sequential quarterly USD direct
sales in the U.S.
Year |
1Q |
2Q |
3Q |
9M |
2020 2019 |
1,689 925 |
1,135 1,979 |
1,733 2,008 |
4,557 4,912 |
OUS sales in 3Q 2020 were $3,528 compared to
$4,919 in 3Q 2019. OUS sales in 9M 2020 were $11,262
compared to $14,707 in 9M 2019.
OUS sales invoiced in GBP, EUR, AUD and CAD
currencies were $85 higher in 3Q 2020 and $36 lower in 9M 2020 as a
result of changes in FX rates. Foreign currency OUS sales in 3Q
2020 were $2,205, which was 62% of all OUS sales and 21% of total
consolidated sales. In comparison, foreign currency OUS
sales in 3Q 2019 were $2,944, which was 60% of all OUS sales and
24% of total consolidated sales.
The foreign currency OUS sales in 9M 2020 were
$6,653, which was 59% of all OUS sales and 22% of total
consolidated sales. In comparison, foreign currency OUS
sales in 9M 2019 were $9,534, which was 65% of all OUS sales and
27% of total consolidated sales. Because Filshie device
sales are also a significant portion of UTMD’s OUS business and an
implanted device most affected by the COVID-19 pandemic, management
believes the following table might help to see the overall 2020
pandemic impact and recovery trend:
Filshie device sequential quarterly
USD-denominated sales OUS:
Year |
1Q |
2Q |
3Q |
9M |
Direct 2020
2019 |
1,798 2,135 |
681 2,036 |
1,426 1,810 |
3,905 5,981 |
Distributor 2020
2019 |
318
494 |
323
487 |
133
437 |
774 1,418 |
Total
OUS 2020
2019 |
2,117 2,630 |
1,003 2,523 |
1,559 2,246 |
4,679 7,399 |
OUS Filshie sales obviously took a deeper hit from
the pandemic than in the U.S.
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 2020 compared to 3Q 2019, worldwide
gynecology/ electrosurgery device sales were down 21%, worldwide
labor & delivery device sales were essentially the same,
worldwide neonatal device sales were down 6% and worldwide blood
pressure monitoring and related OEM product sales were down
18%. Devices in the gynecology/ electrosurgery category
were mostly classified as “nonessential” during the
pandemic. In the blood pressure monitoring category,
UTMD’s largest OUS distributor took a double quarterly shipment in
3Q 2019.
In 9M 2020 compared to 9M 2019, worldwide
gynecology/ electrosurgery device sales were down 22%, worldwide
labor & delivery device sales were down 13%, worldwide neonatal
device sales were down 2% and worldwide blood pressure monitoring
and related OEM product sales were down 3%.
Gross Profit Gross Profit results from
subtracting the costs of manufacturing and shipping products to
customers from revenues. Gross Profit was $883 (12.0%)
lower in 3Q 2020 than in 3Q 2019, and $3,369 (15.6%) lower in 9M
2020 than in 9M 2019. UTMD’s 3Q 2020 GPM improved to
62.0% compared to 59.1% in 3Q 2019 so that the decline in 3Q Gross
Profit was not as significant as the 3Q decline in sales. Sales to
international distributors are at lower prices for the same devices
because the distributor incurs direct marketing expenses instead of
UTMD. Sales to international distributors were only 18%
of total sales in 3Q 2020 compared to 23% in 3Q 2019. The 3Q 2019
GPM was also exceptionally low because of a “double” shipment of
blood pressure monitoring kits to UTMD’s China distributor. For 9M
2020 compared to 9M 2019, Gross Profit declined slightly more than
the sales decline as a result of UTMD not cutting critical
manufacturing overhead resources, and providing special incentives
in 2Q 2020 for employees to come to work. Nevertheless, the 60.6%
GPM for the 2020 year to date has met management’s long term
objective.
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 27.8% of sales in 3Q
2020 compared to 24.1% of sales in 3Q 2019. Operating
Expenses were 29.4% of sales in 9M 2020 compared to 24.8% of sales
in 9M 2019. Although the operating expense percentage of sales
increased due to the 2020 short term pandemic reduction in sales,
management continued to tightly manage operating expenses without
sacrificing resources needed for longer term growth.Summary
comparison of (USD) consolidated operating expenses:
|
3Q 2020 |
3Q 2019 |
9M 2020 |
9M 2019 |
S&M Expense |
$ 352 |
$ 421 |
$ 1,195 |
$ 1,304 |
R&D Expense |
125 |
130 |
375 |
357 |
G&A Expense |
2,432 |
2,457 |
7,285 |
7,037 |
Total Operating Expenses: |
$ 2,909 |
$ 3,008 |
$ 8,855 |
$ 8,698 |
Lower S&M expenses were due primarily to the
lack of trade show expenses during the pandemic. S&M expenses
were 3.4% of sales in both 3Q 2020 and 3Q 2019. S&M
expenses were 4.0% of sales in 9M 2020 compared to 3.7% of sales in
9M 2019.
R&D expenses were consistent with the prior
year’s same periods of time, varying only by specific project
expenses. R&D expenses were 1.2% of sales in 3Q 2020 compared
to 1.0% of sales in 3Q 2019. R&D expenses in 9M 2019 were also
1.2% of sales compared to 1.0% of sales in 9M
2019.
The higher G&A expense in 9M 2020 was due to
amortization expense of the CSI IIA for a full quarter in 1Q 2020
compared to a partial quarter in 1Q 2019. Consolidated
G&A expenses were 23.2% of sales in 3Q 2020 compared to 19.7%
of sales in 3Q 2019. Consolidated G&A expenses were
24.1% of sales in 9M 2020 compared to 20.1% of sales in 9M
2019. G&A expenses included non-cash expense from
the amortization of IIA resulting from the March 2011 Femcare Group
Ltd (UK) acquisition and the amortization of IIA from the purchase
of the CSI U.S. exclusive Filshie devices distribution rights
effective in February 2019.
The initial amount of IIA for the 2011 Femcare UK
purchase was £23,998. After 9.5 years of amortization,
the IIA balance is £8,686. For both years of 2020 and
2019, the amortization expense rate was a constant £399 per
calendar quarter. The USD amortization expense amount in each
period, however, varied according to the USD/GBP FX
rate. The initial amount of IIA for the 2019
acquisition of 4.75 years’ remaining exclusive U.S. Filshie device
distribution rights from CSI was $21,000. The
straight-line amortization of this IIA is $1,105/ calendar quarter
over the remaining 4.75 years of the prior distribution agreement.
After 20 months of amortization, the CSI IIA balance as of
September 30, 2020 is $13,632. The difference in 9M CSI
IIA amortization expense is due to the start of the amortization in
February 2019, i.e. 9 months of expense in 2020 through September
versus 8 months in 2019.
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 2020 |
3Q 2019 |
9M 2020 |
9M 2019 |
IIA amortization expense |
$ 1,621 |
$ 1,597 |
$ 4,839 |
$ 4,471 |
All other G&A expense |
811 |
860 |
2,445 |
2,566 |
Total G&A
Expenses: |
$ 2,432 |
$ 2,457 |
$ 7,284 |
$ 7,037 |
Percent of
Sales: |
3Q 2020 |
3Q 2019 |
9M 2020 |
9M 2019 |
IIA amortization expense |
15.5% |
12.8% |
16.0% |
12.8% |
All other G&A expense |
7.7% |
6.9% |
8.1% |
7.3% |
Total G&A
Expenses: |
23.2% |
19.7% |
24.1% |
20.1% |
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 5.5 more years to run at about $516 per
quarter using the same 1.295 USD/GBP FX rate as in 3Q
2020. The CSI IIA amortization expense has 3.1 more years to
run at $1,105 per quarter. Stockholders will appreciate
that, although cash flow will not be affected, annualized reported
EPS will increase $.90 after another 3.1 years, based on current
shares outstanding and if current U.S. and Utah income tax rates
remain the same. Similarly, after another 5.5 years annualized EPS
would be $1.36 higher based on current shares outstanding and
unchanged income tax rates.
Other G&A expenses were lower in both periods
primarily because UTMD’s CEO has taken 50% salary in 2020 compared
to 2019, and 2020 management bonuses based on the projected 2020
annual EBT have been accrued at a lower rate than in
2019.
In summary, Operating Income in 3Q 2020 was $3,588
(34.2% of sales) compared to $4,371 (35.0% of sales) in 3Q
2019. Operating Income in 9M 2020 was $9,428 (31.3% of
sales) compared to $12,954 (36.9% of sales) in 9M
2019. Lower gross profits in 2020 were leveraged down
further by higher IIA amortization expense absorbed by fewer sales.
In any event, the operating income margins achieved in 2020 were
excellent compared to industry peers.
Income Before Tax (EBT) EBT results
from subtracting net non‑operating expense or adding net
non-operating income from or to, as applicable, Operating
Income. Consolidated 3Q 2020 EBT was $3,588 (34.2% of
sales) compared to $4,448 (35.6% of sales) in 3Q
2019. Consolidated 9M 2020 EBT was $9,553 (31.7% of
sales) compared to $13,150 (37.5% of sales) in 9M
2019.
For UTMD, non-operating expenses include bank
fees, losses from remeasuring the value of EUR cash bank balances
in the UK, and GBP cash balances in Ireland, in USD terms, and
losses from the disposition of fixed
assets. Non-operating income includes income from rent
of underutilized property; investment income; gains from
remeasuring the value of EUR or GBP bank balances, as applicable;
and gains from the disposition of fixed assets. Net
non-operating income results from subtracting non-operating
expenses from gross non-operating income. UTMD’s net
non-operating income in 3Q 2020 was less than $1 compared to $76 in
3Q 2019. Net non-operating income in 9M 2020 was $126
compared to $196 in 9M
2019.
The EBT of Utah Medical Products, Inc. in the U.S.
was $6,469 in 9M 2020 compared to $8,674 in 9M 2019. The EBT of
Utah Medical Products, Ltd (Ireland) was EUR 2,393 in 9M 2020
compared to EUR 2,157 in 9M 2019. The EBT of Femcare Group Ltd
(Femcare Ltd., UK and Femcare Australia Pty Ltd) was GBP (297) in
9M 2020 compared to GBP 1,449 in 9M 2019. The 9M 2020 EBT of Utah
Medical Products Canada, Inc. (dba Femcare Canada) was CAD 565 in
9M 2019 compared to CAD 926 in 9M 2019. 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 U.S. Securities and Exchange Commission advises that
EBITDA is a non-GAAP metric, UTMD’s non-US GAAP EBITDA is the sum
of the following elements in the table below, each of which is a US
GAAP number:
|
3Q
2020 |
3Q 2019 |
9M 2020 |
9M 2019 |
EBT |
$ 3,588 |
$ 4,448 |
$ 9,553 |
$13,150 |
Depreciation Expense |
160 |
171 |
495 |
526 |
Femcare IIA Amortization Expense |
516 |
492 |
1,523 |
1,524 |
CSI IIA Amortization Expense |
1,105 |
1,105 |
3,316 |
2,947 |
Other Non-Cash Amortization Expense |
13 |
13 |
37 |
41 |
Stock Option Compensation Expense |
49 |
29 |
121 |
85 |
Remeasured Foreign Currency Balances |
2 |
(3) |
(41) |
44 |
UTMD non-US GAAP EBITDA: |
$ 5,433 |
$ 6,255 |
$15,004 |
$18,317 |
Period to Period Change: |
(13.2%) |
|
(18.1%) |
|
In
summary, UTMD’s 3Q 2020 non-US GAAP EBITDA declined 13.2% compared
to a 19.3% decline in EBT, and 9M 2020 non-US GAAP EBITDA declined
18.1% compared to a 27.4% decline in
EBT. Management believes that the non-US GAAP
EBITDA decline is more indicative of the COVID-19 negative impact
on UTMD’s 2020 operating results than the change represented by
EBT.
Net IncomeNet Income in 3Q 2020 was $2,933 (28.0%
of sales) compared to $3,705 (29.7% of sales) in 3Q
2019. The average consolidated income tax
provision (as a % of EBT) in 3Q 2020 was 18.3% compared to 16.7% in
3Q 2019.
Net Income in 9M 2020 was $7,386 (24.5% of sales)
compared to Net Income of $10,369 (29.6% of sales) in 9M
2019. Net Income in 9M 2020 included a 2Q 2020
unfavorable $225 tax provision increase for a future UK income tax
increase on non-deductible IIA amortization expense over the next
six years. The average consolidated income tax
provisions (as a % of EBT) in 9M 2020 and 9M 2019 were 22.7% and
21.1%, respectively.
Earnings per share (EPS) Diluted EPS in
3Q 2020 were $.803 compared to $.991 in 3Q 2019. Diluted EPS
in 9M 2020 were $2.008 compared to $2.774 in 9M
2019. According to U.S. GAAP, the UK tax law change in
2Q 2020 which increased UTMD’s deferred tax liability, to be
amortized over the next six years, was recognized as an income tax
provision increase in the 2Q 2020 income statement. Without the 2Q
2020 $225 tax provision adjustment, 9M 2020 EPS were
$2.069.
Diluted shares were 3,653,500 in 3Q 2020 compared
to 3,737,335 in 3Q 2019, and 3,678,210 in 9M 2020 compared to
3,738,056 in 9M 2019. The lower diluted shares in 9M
2020 were the combined result of 80,000 shares repurchased in 1Q
2020, 7,000 shares repurchased in 3Q 2020, 5,614 employee option
exercises in 9M 2020 and an employee option award of 26,300 shares
in March 2020.
Outstanding shares at the end of 3Q 2020 were
3,640,371 compared to 3,721,757 at the end of calendar year 2019.
The difference was due to employee option exercises of 5,614 during
9M 2020 offset by 87,000 shares repurchased in the open market.
Outstanding shares were 3,720,344 one year ago at the end of 3Q
2019. 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 September 30,
2020 was 71,700 at an average exercise price of $65.80, including
shares awarded but not yet vested. This compares to
51,690 unexercised option shares at the end of 2019 at an average
exercise price of $58.50/ share, including shares awarded but not
yet vested.
The number of shares added as a dilution factor in
3Q 2020 was 11,130 compared to 17,588 in 3Q 2019. The number of
shares added as a dilution factor in 9M 2020 was 14,514 compared to
16,435 in 9M 2019. In March 2020, 26,300 option shares
were awarded to 48 employees at an exercise price of $77.05 per
share. No options were awarded in 2019. UTMD paid $1,020
($0.280/share) in dividends to stockholders in 3Q 2020 compared to
$1,028 ($0.275/ share) paid in 3Q 2019. Dividends paid to
stockholders during 3Q 2020 were 35% of 3Q 2020 Net
Income. UTMD paid $3,097 ($0.280/share) in dividends to
stockholders in 9M 2020 compared to $3,083 ($0.275/ share) paid in
9M 2019. Dividends paid to stockholders during 9M 2020 were 41% of
9M 2020 Net Income.
In March 2020, UTMD repurchased 80,000 of its
shares in the open market at $80.32/ share. In September 2020, UTMD
repurchased 7,000 of its shares in the open market at $78.67/
share. The total 87,000 shares repurchased in 9M 2020
were at an average price of $80.19/ share. In May 2019,
UTMD repurchased 5,000 shares at $79.52/ share. No other shares
were repurchased in 2019. The Company retains the strong desire and
financial ability for repurchasing its shares at a price it
believes is attractive for remaining stockholders, preferably
shares from institutional investors who blindly follow proxy
advisory firm bureaucratic recommendations which don’t care about
performance or support management. UTMD’s closing share price at
the end of 3Q 2020 was $79.87, down 26% from the $107.90 closing
price at the end of 2019. The closing share price at the end
of 3Q 2019 was $95.84.
Balance Sheet.At September 30, 2020 compared to
the end of 2019, UTMD cash and investments increased $3.5 million
to $46.3 million after using $3.1 million cash for dividends to
stockholders and $7.0 million cash to repurchase 87,000 UTMD
shares. At September 30, 2020, working capital was $53.6 million
compared to $51.4 million at the end of 2019. Net
Intangible Assets were 36.2% of total consolidated assets on
September 30, 2020 compared to 40.2% on December 31,
2019. Even with much lower demand as a result of the COVID-19
pandemic, UTMD was able to reduce inventories $0.6 million at
September 30, 2020 from December 31, 2019. Consolidated
Accounts Receivable (net of allowances) declined $0.5 million at
September 30, 2020 compared to December 31, 2019. UTMD
was able to maintain the aging of trade receivables at the end of
3Q 2020 at 36 days, the same as at the end of 2019, despite
increased financial stress of hospitals and international
distributors during the pandemic.
Stockholders’ Equity at September 30, 2020
declined only $2.7 million from the end of 2019 despite a $10.1
million reduction from $3.1 million in cash dividends and $7.0
million in stock repurchases.
Financial ratios as of September 30, 2020 which
may be of interest to stockholders
follow:1) Current Ratio =
15.82) Days in Trade Receivables (based on 3Q 2020
sales activity) = 363) Average Inventory Turns
(based on 3Q 2020 CGS and average inventories) =
2.54) 2020 YTD ROE (before dividends) = 10%
Investors are cautioned that this press release
contains forward-looking statements and that actual events may
differ from those projected. Risk factors that could
cause results to differ materially from those projected include
global economic conditions, market acceptance of products,
regulatory approvals of products, regulatory intervention in
current operations, government intervention in healthcare in
general, tax reforms, the Company’s ability to efficiently
manufacture, market and sell products, cybersecurity and foreign
currency exchange rates, among other factors that have been and
will be outlined in UTMD’s public disclosure filings with the
SEC.
Utah Medical Products, Inc., with particular
interest in health care for women and their babies, develops,
manufactures and markets a broad range of disposable and reusable
specialty medical devices recognized by clinicians in over one
hundred countries around the world as the standard for obtaining
optimal long term outcomes for their patients. For more
information about Utah Medical Products, Inc., visit UTMD’s website
atwww.utahmed.com.
Utah Medical Products, Inc.
INCOME STATEMENT, Third Quarter (3 months ended
September 30)(in thousands except earnings per share):
|
3Q 2020 |
3Q 2019 |
Percent Change |
Net Sales |
$ 10,479 |
$ 12,494 |
(16.1%) |
Gross Profit |
6,497 |
7,379 |
(12.0%) |
Operating Income |
3,588 |
4,371 |
(17.9%) |
Income Before Tax |
3,588 |
4,448 |
(19.3%) |
Net Income |
2,933 |
3,705 |
(20.8%) |
Diluted EPS |
$ .803 |
$ .991 |
(19.0%) |
Shares Outstanding (diluted) |
3,654 |
3,737 |
|
INCOME STATEMENT, Three Quarters (9
months ended September 30)(in thousands except earnings per
share):
|
9M 2020 |
9M 2019 |
Percent Change |
Net Sales |
$ 30,168 |
$ 35,073 |
(14.0%) |
Gross Profit |
18,283 |
21,652 |
(15.6%) |
Operating Income |
9,428 |
12,954 |
(27.2%) |
Income Before Tax |
9,553 |
13,150 |
(27.4%) |
Net Income |
7,386 |
10,369 |
(28.8%) |
Diluted EPS |
$ 2.008 |
$ 2.774 |
(27.6%) |
Shares Outstanding (diluted) |
3,678 |
3,738 |
|
BALANCE SHEET
(in thousands) |
(unaudited) SEP 30, 2020 |
(unaudited) JUN 30, 2020 |
(audited)DEC 31, 2019 |
(unaudited)SEP 30, 2019 |
Assets |
|
|
|
|
Cash & Investments |
$46,294 |
$42,352 |
$42,787 |
$37,393 |
Accounts & Other Receivables, Net |
4,277 |
3,792 |
4,742 |
5,067 |
Inventories |
6,304 |
6,580 |
6,913 |
6,711 |
Other Current Assets |
385 |
393 |
444 |
342 |
Total Current Assets |
57,260 |
53,117 |
54,886 |
49,513 |
Property & Equipment, Net |
11,036 |
10,812 |
10,728 |
10,266 |
Intangible Assets, Net |
38,776 |
39,616 |
44,173 |
44,315 |
Total Assets |
$107,072 |
$103,545 |
$109,787 |
$104,094 |
Liabilities & Stockholders’ Equity |
|
|
|
|
Accounts Payable |
651 |
560 |
1,098 |
786 |
REPAT Tax Payable |
79 |
79 |
101 |
85 |
Other Accrued Liabilities |
2,897 |
2,604 |
2,249 |
2,815 |
Total Current Liabilities |
$3,627 |
$3,243 |
$3,448 |
$3,686 |
Deferred Tax Liability – Intangible Assets |
2,132 |
2,135 |
2,239 |
2,170 |
Long Term Lease Liability Long Term REPAT Tax Payable |
3461,995 |
3561,995 |
3762,110 |
3852,441 |
Deferred Income Taxes |
557 |
528 |
521 |
426 |
Stockholders’ Equity |
98,415 |
95,288 |
101,093 |
94,986 |
Total Liabilities &
Stockholders’ Equity |
$107,072 |
$103,545 |
$109,787 |
$104,094 |
Contact: Crystal Rios (801) 566-1200
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