UTMD Reports Financial Performance for Third Calendar Quarter and Nine Months 2023

The weighted-average unfavorable impact on 9M 2023 foreign currency OUS sales was just 0.3%, reducing reported USD sales by $33 relative to the same foreign currency sales in 9M 2022.  In constant currency terms, OUS sales in 9M 2023 were 15.3% higher than in 9M 2022. The portion of OUS sales invoiced in foreign currencies in USD terms was 28.8% of total consolidated 9M 2023 sales compared to 23.9% in 9M 2022. Direct to end-user foreign currency OUS 9M 2023 sales in USD terms were 5.3% higher in Ireland, 14.1% lower in Canada, 9.5% higher in France, 21.7% higher in the UK and 18.2% lower in AUS/NZ. Sales to OUS distributors/OEM (including biopharmaceutical) customers were 21.2% higher in 9M 2023 than in 9M 2022.

Since shipments to OEM customers and OUS distributors typically have long lead times, the current order backlog added to 9M 2023 sales results for those segments provides a fair estimate for 2023 sales as a whole, barring new unresolved raw material supply constraints and further third-party sterilization capacity limits. Based on the current backlog, management expects that WW biopharmaceutical OEM sales to its largest customer will be about $3 million lower in 2023 than in 2022, representing about 17% of 2023 total consolidated sales compared to 22% in 2022.  This projection is consistent with management’s beginning of year 2023 sales estimates, and suggests a net total annual 2023 consolidated sales decline of about $2 million.

Gross Profit (GP)

GP results from subtracting the costs of manufacturing, quality assurance and receiving materials from suppliers from revenues. UTMD’s GP was $827 (10.1%) lower in 3Q 2023 than in 3Q 2022, and $929 (3.9%) lower in 9M 2023 than in 9M 2022. UTMD price increases to customers since early 2022 were substantially lower than its continued cost increases, with continued “sticky” inflation.  Although direct labor productivity remained consistent with the past, raw material costs continued to increase and higher manufacturing overhead costs were less absorbed by lower revenues.    

Operating Income (OI)

OI results from subtracting Operating Expenses (OE) from GP.  OI in 3Q 2023 was $3,969 compared to $5,141 in 3Q 2022, a $1,171 (22.8%) decline; and was $12,833 in 9M 2023 compared to $14,720 in 9M 2022, a $1,887 (12.8%) decline. 

OE are comprised of Sales and Marketing (S&M) expenses, General and Administrative (G&A) expenses and Product Development (R&D) expenses. The following table summarizes OE in 3Q and 9M 2023 compared to the same periods in 2022 by OE category:

Changes in foreign currency exchange rates did not have a significant impact on consolidated financial results in 2023.  A stronger EUR and GBP in 3Q 2023 helped increase OUS S&M expense by $3 and OUS G&A expense by $51. An average slightly stronger USD for 9M 2023, reduced OUS S&M expenses by $4, OUS G&A expenses by $26 and OUS R&D expenses by $1. The following table summarizes “constant currency” OE in 3Q and 9M 2023 compared to the same periods in 2022 by OE category:

S&M and R&D expenses were higher primarily as a result of cost-of-living adjustments to employee salaries. 

A division of G&A expenses by location follows. G&A expenses include non-cash expenses from the amortization of IIA associated with the Filshie Clip System, which is also separated out below:  

Although the IIA amortization expense in either USD or GBP, depending on where expensed, was the same as in the prior year’s same periods, the 3Q 2023 OI margin was diluted by 0.7 percentage points, and the 9M 2023 OI margin was diluted by 0.2 percentage points, due to a lower sales denominator and the GBP FX rate difference. Non-cash IIA amortization expense was 57% of total G&A expenses in both 3Q 2023 and 9M 2023.  Litigation expenses, included in the Other-US G&A Expense category above, were about 2.8% of sales in both 3Q 2023 and 9M 2023.  Litigation expenses were 1.4% of sales in 3Q 2022 and 1.1% of sales in 9M 2022.  In other words, higher litigation expenses reduced UTMD’s OI margin by another 1.4 percentage points in 3Q 2023, and another 1.7 percentage points in 9M 2023.

OUS G&A expenses in USD terms were $818 in 3Q 2023 compared to $745 in 3Q 2022. OUS G&A expenses were $2,416 in 9M 2023 compared to $2,379 in 9M 2022. The constant currency table below shows how the changes in FX rates affected reported OUS G&A expenses for 3Q 2023 ($51 higher) and 9M 2023 ($26 lower):

Summary explanation for changes in OI Margin from prior year’s same periods:

Income Before Tax (EBT)

EBT results from subtracting net non‑operating expense (NOE) or adding net non-operating income (NOI) from or to, as applicable, OI.  Consolidated 3Q 2023 EBT was $4,781 (38.2% of sales) compared to $5,339 (41.2% of sales) in 3Q 2022. Consolidated 9M 2023 EBT was $15,072 (39.8% of sales) compared to $15,068 (38.9% of sales) in 9M 2022. The improvement in 9M EBT was due to higher net NOI.     

NOE/NOI includes the combination of 1) expenses from loan interest and bank fees; 2) expenses or income from losses or gains from remeasuring the value of EUR cash bank balances in the UK, and GBP cash balances in Ireland, in USD terms; and 3) income from rent of underutilized property, investment income and royalties received from licensing the Company’s technology. Negative NOE is NOI.  Net NOI in 3Q 2023 was $811 compared to $198 NOI in 3Q 2022. Net NOI in 9M 2023 was $2,239 compared to $348 NOI in 9M 2022. UTMD realized a $7 remeasured currency balance loss in both 9M 2023 and 9M 2022. With higher cash balances and interest rates in 9M 2023 compared to 9M 2022, UTMD received $1,826 more in WW interest income. NOI generated in Ireland from renting unused warehouse space to a third party yielded a further increase in 9M 2023 NOI compared to 9M 2022.      

EBITDA is a non-US GAAP metric that measures profitability performance without factoring in effects of financing, accounting decisions regarding non-cash expenses, capital expenditures or tax environments. Excluding the noncash effects of depreciation, amortization of intangible assets and stock option expense, 3Q 2023 consolidated EBT excluding the remeasured bank balance currency gain or loss and interest expense (“adjusted consolidated EBITDA”) was $6,604 compared to $7,111 in 3Q 2022. 

Adjusted consolidated EBITDA was $20,520 in 9M 2023 compared to $20,487 in 9M 2022. Adjusted consolidated EBITDA for the previous four calendar quarters (TTM) was $27,924 as of September 30, 2023.   

UTMD’s adjusted consolidated EBITDA as a percentage of sales was 52.8% in 3Q 2023 compared to 54.9% in 3Q 2022, reflecting the lower 3Q 2023 GPM.  UTMD’s adjusted consolidated EBITDA as a percentage of sales was 54.2% in 9M 2023 compared to 52.9% in 9M 2022.

Management believes that this operating performance metric provides meaningful supplemental information to both management and investors and confirms UTMD’s ongoing excellent financial operating performance during a difficult economic period of time.

UTMD’s non-US GAAP adjusted consolidated EBITDA is the sum of the elements in the following table, each element of which is a US GAAP number:

Net Income (NI)

NI in 3Q 2023 of $3,935 (31.5% of sales) was 8.1% lower than NI of $4,280 (33.0% of sales) in 3Q 2022. NI in 9M 2023 of $12,349 (32.6% of sales) was 3.6% higher than NI of $11,918 (30.8% of sales) in 9M 2022.

The average consolidated income tax provisions (as a % of the same period EBT) in 3Q 2023 and 3Q 2022 were 17.7% and 19.8% respectively, and were 18.1% and 20.9% in 9M 2023 and 9M 2022 respectively. The consolidated income tax provision rate varies as the mix in taxable income among U.S. and foreign subsidiaries with differing income tax rates differs from period to period. In addition, a portion of UTMD’s 2023 NOI generated from interest on high grade tax-exempt municipal bonds helped reduce the overall income tax provision rate. UTMD has consistently paid millions of dollars in income taxes annually. The basic corporate income tax rates in each of the sovereignties were the same as in the prior year.

Earnings per share (EPS). 

Diluted EPS in 3Q 2023 were $1.081 compared to $1.178 in 3Q 2022, an 8.2% decrease. Diluted EPS in 9M 2023 were $3.394 compared to diluted EPS of $3.265 in 9M 2022, a 4.0% increase. Diluted shares were 3,638,723 in 3Q 2023 compared to 3,634,235 in 3Q 2022. The higher diluted shares in 3Q 2023 were the result of exercise of employee options.

The number of shares used for calculating 3Q 2023 EPS was higher than September 30, 2023 actual outstanding shares because of a time-weighted calculation of average outstanding shares plus dilution from unexercised employee and director options. Outstanding shares at the end of 3Q 2023 were 3,629,525 compared to 3,627,767 at the end of calendar year 2022. The difference was due to 1,758 shares in employee option exercises during 9M 2023. For comparison, actual outstanding shares were 3,625,195 at the end of 3Q 2022. The total number of outstanding unexercised employee and outside director options at September 30, 2023 was 65,301 at an average exercise price of $73.83, including shares awarded but not yet vested.  This compares to 49,895 unexercised option shares at the end of 3Q 2022 at an average exercise price of $69.00/ share, including shares awarded but not vested.

The number of shares added as a dilution factor for 3Q 2023 was 9,309 compared to 9,220 in 3Q 2022. The number of shares added as a dilution factor for 9M 2023 was 9,918 compared to 9,424 in 9M 2022. In October 2022, 20,600 option shares were awarded to 40 employees at an exercise price of $82.60.  No options have been awarded in 2023.  UTMD paid $1,071 ($0.295/share) in dividends to stockholders in 3Q 2023 compared to $1,051 ($0.290/ share) paid in 3Q 2022. Dividends paid to stockholders during 3Q 2023 were 27% of 3Q 2023 NI. UTMD paid $3,211 ($0.295/share) in dividends to stockholders in 9M 2023 compared to $2,111 ($0.290/ share) paid in 9M 2022. The difference was due to an earlier payment of a special dividend at the end of 2021 instead of in 1Q 2022. No UTMD shares have been purchased in the open market in 2023. In 2Q 2022, the Company purchased 30,105 UTMD shares at an average cost of $82.88/ share. The Company retains the strong desire and financial ability for repurchasing its shares at a price it believes is attractive for remaining stockholders.

UTMD’s closing share price at the end of 3Q 2023 was $86.00, down from the closing price of $93.20 three months earlier at the end of 2Q 2023, and the closing price of $100.53 nine months earlier at the end of 2022.    

Balance Sheet.

At September 30, 2023, UTMD’s cash and investments increased $13,157 to $88,209 from $75,052 at the end of 2022, despite using cash during 9M 2023 to pay $3,211 in dividends to stockholders and $549 to purchase new manufacturing equipment, plus changes in working capital. The net increase in cash was provided by UTMD’s excellent operating 9M EBITDA of $20,520. At September 30, 2023, Net Intangible Assets decreased to 14.5% of total consolidated assets from 19.2% on December 31, 2022.  The 2019 $21,000 purchase of remaining exclusive U.S. distribution rights for the Filshie Clip System will be fully amortized in October. 

Financial ratios as of September 30, 2023 which may be of interest to stockholders follow:

1)   Current Ratio = 24.4

2)   Days in Trade Receivables (based on 3Q 2023 sales activity) = 24.7

3)   Average Inventory Turns (based on 3Q 2023 average inventory and CGS) = 2.1

4)   2023 YTD ROE (before dividends) = 14%

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.  UTMD’s 3Q 2023 SEC Form 10-Q will be filed on or before November 14, 2023, and can be accessed on www.utahmed.com.

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 at www.utahmed.com.

Utah Medical Products, Inc.

INCOME STATEMENT, Third Quarter (three months ended September 30)
(in thousands except earnings per share):

 Contact: Brian Koopman (801) 566-1200