What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-11 compared with 2020-11-06 · 175 added, 266 removed, 66 unchanged (87% of the section changed)

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(UTMD) manufactures and markets a well-established range of specialty medical devices.

The Company’s Form 10-K Annual Report for the year ended December 31, 2019, provides a detailed description of products, technologies, markets, regulatory issues, business initiatives, resources and business risks, among other details, and should be read in conjunction with this report.

The Company’s Form 10-K Annual Report for the year ended December 31, 2020 provided a detailed description of products, technologies, markets, regulatory issues, business initiatives, resources and business risks, among other details, and should be read in conjunction with this report.

Because of the relatively short span of time, 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.

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Currencies in this report are denoted as $ or USD = U.S.

A$ or AUD = Australia Dollars;

AUD = Australia Dollars;

£ or GBP = UK Pound Sterling;

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Analysis of Results of Operations

Income statement results in 3Q and 9M 2020 compared to the same periods of 2019 were as follows:

Income statement results in the first quarter (1Q) of 2021 compared to 1Q 2020 were as follows:

Operating Income

Income Before Tax

Net Income (NI)

Earnings per Diluted Share (EPS)

UTMD 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:

Consolidated Income Statement

Worldwide Revenues

Operating Income

Earnings Before Income Tax

Earnings per Share

Revenues [USD denominated]

domestic (excluding OEM)

Canada domestic

Ireland domestic

France domestic

Australia domestic

Subtotal, Direct to End User:

All Other OUS (Sales to Int’l Distributors)

Worldwide Revenues

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:

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

1) International distributors’ quarter-to-quarter orders fluctuate more than domestic end user orders.

2) 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:

Gross Profit Margin (gross profits/ sales):

Operating Income Margin (operating profits/ sales):

Profit margins in 1Q 2021 compared to 1Q 2020 follow:

Gross Profit Margin (Gross Profit/ sales):

Operating Income Margin (Operating Income/ sales):

EBT Margin (Profits before Income Taxes/ sales):

Net Income Margin (Profit after Taxes/ sales):

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 end of 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:

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.

Beginning on January 1, 2018, the Company adopted ASU 2014-09, the new revenue recognition accounting standard.

Management completed an extensive assessment and implementation of the standard, including UTMD’s various contracts with customers and associated performance obligations and the Company’s conclusions regarding its revenue recognition practices and procedures.

Other items like commissions and rights of return were also evaluated by the Company.

Management is confident that the Company has properly evaluated the standard’s requirements and has arrived at appropriate conclusions in recognizing revenue in accordance with the new standard.

Those practices and procedures the Company will use to recognize revenue under the new standard are not significantly different than the methods used previously since UTMD has traditionally recognized revenue upon shipping a physical product to a customer, which is also when the Company has met its performance obligations under contracts it has with its customers that represent over 99% of its revenue.

While the Company’s revenue not associated with shipping a physical product is immaterial, management believes the Company’s practices in recognizing that revenue is also in accordance with ASU 2014-09.

Despite very weak demand for UTMD’s devices in January 2021 due to renewed lockdowns after steady improvements in medical device demand during 2020 following the second calendar quarter (2Q), first calendar quarter (1Q) 2021 sales, gross profits and operating profits were all higher for the full quarter compared to 1Q 2020.

Stockholders will remember that in 1Q 2020, the impact of restrictions imposed due to the corona virus pandemic began in March.

Because the negative impact on UTMD was at its worst in 2Q 2020, UTMD expects substantially better comparative results for 2Q 2021.

Sales invoiced in foreign currencies were helped by a weaker USD.

Despite the higher Operating Income, 1Q 2021 Income Before Tax (EBT) was lower as a result of much less non-operating income, i.e.

less interest received on UTMD’s cash reserves.

The Net Income comparison was lowered further by a higher estimated consolidated income tax provision rate, due to a greater share of EBT coming in higher-taxed sovereignties such as the U.S.

On the other hand, Earnings Per Share (EPS) were helped by UTMD share repurchases during 2020.

UTMD’s March 31, 2021 Balance Sheet, in the absence of debt, continued to strengthen.

Ending Cash and Investments were $56.0 million on March 31, 2021 compared to $51.6 million on December 31, 2020, after paying $1.0 million in cash dividends to stockholders during 1Q 2021.

Stockholders’ Equity increased $2.1 million in the three month period from December 31, 2020 despite the fact that dividends reduce Stockholders’ Equity.

Compared to March 31, 2020, cash increased $16.4 million and Stockholders’ Equity increased $10.5 million.

Terms of sale are established in advance of UTMD’s acceptance of customer orders.

In the U.S., Ireland, UK, France, Canada and Australia, UTMD generally accepts orders directly from and ships directly to end user clinical facilities, as well as third party medical/surgical distributors, under UTMD’s Standard Terms and Conditions (T&C) of Sale.

About 14% of UTMD’s domestic end user sales, excluding Filshie device sales, go through third party med/surg distributors which contract separately with clinical facilities to provide purchasing, storage and scheduled delivery functions for the applicable facility.

UTMD’s T&C of Sale to end user facilities are substantially the same in the U.S., Ireland, UK, France, Canada and Australia.

In the U.S., Ireland, UK, Canada, Australia and New Zealand, UTMD generally accepted orders directly from and shipped directly to end user clinical facilities, as well as third party medical/surgical distributors, under UTMD’s Standard Terms and Conditions (T&C) of Sale during 1Q 2021.

UTMD may have separate discounted pricing agreements with a specific clinical facility or group of affiliated facilities based on volume of purchases.

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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 2020 UTMD sales were $2,016 (16.1%) lower than in 3Q 2019.

Total consolidated 1Q 2021 worldwide (WW) UTMD sales were $62 (+0.6%) higher than in 1Q 2020.

Constant currency sales were $189 (1.7%) 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 domestic direct sales in the U.S.

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 OUS sequential quarterly USD-denominated sales:

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%.

The following table provides USD sales amounts divided into general product categories for total sales and the subset of OUS sales:

Global 3Q 2020 revenues (USD) by product category:

“Constant currency” sales means exchanging foreign currency sales into USD-denominated sales at the same FX rate as was in the previous period of time being compared.

domestic sales were 5% higher and outside the U.S.

(OUS) sales were 6% lower.

Domestic U.S.

sales in 1Q 2021 were $6,783 compared to $6,443 in 1Q 2020.

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 50% of total domestic sales, were $26 (+1%) higher in 1Q 2021 than in 1Q 2020.

OEM sales, representing 28% of total domestic sales, were $520 (+38%) higher.

Direct Filshie device sales were $206 (12%) lower in 1Q 2021 compared to 1Q 2020 due to a significant response in January to an upsurge in U.S.

reported COVID-19 infections.

In January 2021, Filshie device sales were the lowest one month of sales since May 2020, which was the second lowest month (after April 2020) during the 2020 pandemic.

In the very short most recent time period of the first half of April 2021, incoming U.S.

domestic medical facility orders for Filshie devices were already greater than in the entire month of April 2020.

Other UTMD gynecology/ electrosurgery/ urology devices were also considered “elective” during the early phases of the pandemic, and have shown similar recent results.

OEM sales were 38% higher at $1,904 in 1Q 2021 compared to $1,384 in 1Q 2020.

OEM sales depend not only on the success of other companies, but also on UTMD’s manufacturing capacity.

As part of UTMD’s corporate strategy, the company does not seek to grow its business by OEM sales, which on their own have a lower profit margin (GPM) and do not provide long term intangible value for UTMD stockholders.

The benefit of OEM sales for UTMD is to “back-fill” preexisting manufacturing capabilities and capacities with work to smooth production, better absorb UTMD’s critical mass of overhead resources and maximize UTMD’s GP margin.

In 2021, OEM sales are constrained more by the tight market for production labor in Utah, and the time it takes to fully train operators, than by demand.

OUS sales in 1Q 2021 were 6% lower at $4,181 compared to $4,459 in 1Q 2020.

The decline in USD-denominated OUS sales is understated as a result of a weaker USD which added $251 to OUS sales that were invoiced in GBP, EUR, AUD and CAD foreign currencies (in constant currency terms).

FX rates for income statement purposes are transaction-weighted averages.

The average FX rates from the applicable foreign currency to USD during 1Q 2021 and 1Q 2020 for revenue purposes follow:

The weighted average favorable impact on foreign currency OUS sales was 9.0%, increasing reported USD sales by $251 relative to the same foreign currency sales in 1Q 2020.

In constant currency terms, OUS sales in 1Q 2021 were 11.9% lower than in 1Q 2020.

This was because medical device sales OUS, particularly in Europe, have not recovered from pandemic-related restrictions as well as domestically.

The portion of OUS sales invoiced in foreign currencies in USD terms were 28% of total consolidated 1Q 2021 sales compared to 26% in 1Q 2020.

OUS sales invoiced in foreign currencies are due to direct end-user sales in Ireland, the UK, France, Canada, Australia and New Zealand, and to shipments to OUS distributors of products manufactured by UTMD subsidiaries in Ireland or the UK.

Export sales from the U.S.

to OUS distributors are invoiced in USD.

Direct to end-user OUS sales in USD terms were 15% lower in Ireland, 22% lower in Canada, 7% lower in France and 49% lower in the UK.

Direct to end-user sales in Australia, which included New Zealand in 1Q 2021 but not in 1Q 2020, were 2% higher.

Sales to OUS distributors were 9% higher in 1Q 2021 than in 1Q 2020, primarily because sales to UTMD’s China distributor of blood pressure monitoring (BPM) devices were 110% higher and Filshie device sales to OUS distributors were 11% higher.

The following table provides USD consolidated sales amounts divided into general product categories for total WW sales and the subset of OUS sales:

WW revenues (USD) by product category:

Gynecology/ Electrosurgery/ Urology

Blood Pressure Monitoring and Accessories*

Global 9M 2020 revenues (USD) by product category:

OUS revenues (USD) by product category:

Gynecology/ Electrosurgery/ Urology

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*includes molded components sold to OEM customers.

Looking forward, although an increase in COVID-19 infections is likely in the winter months of 4Q 2020 in the northern hemisphere, assuming no significant new lockdowns or prohibitions of “nonessential procedures” are imposed by governments, UTMD expects that its 4Q 2020 sales will continue to recover and be higher than in 3Q 2020.

Recognizing the current high level of uncertainty, management expects 2Q 2021 consolidated revenues may be 25% higher than in 2Q 2020, leading to perhaps 8% higher sales for the year 2021.

What actually happens depends in large part not only on when governments allow hospitals to once again conduct so-called elective procedures, but also on when patients again feel confident in going to the hospital.

c) 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.

Gross Profit results from subtracting the costs of manufacturing and shipping products to customers.

UTMD’s consolidated Gross Profit was $110 (1.6%) higher in 1Q 2021 than in 1Q 2020 as a result of slightly higher sales and an expansion in consolidated Gross Profit Margin (GPM), which is consolidated Gross Profit divided by consolidated WW Revenues.

The higher GPM was not achieved because of a change in “product mix” favoring more profitable devices, or higher customer prices.

Higher than average margin WW sales of Filshie devices in 1Q 2021, still constrained by government COVID-19 restrictions, were 16% lower than in 1Q 2020.

Lower than average margin OEM sales were 38% higher.

UTMD’s price increases since 1Q 2020 have been much more modest than the inflation experienced in raw material costs.

Manufacturing overhead expenses increased more than sales as well, due in part to a stronger EUR for converting Ireland manufacturing expenses to USD and continued increases in the cost of complying with regulatory requirements.

Incoming freight costs, captured as part of manufacturing overhead expenses, increased substantially.

In summary, the GPM improvement resulted from greater direct labor productivity, despite continued pandemic restrictions such as wearing personal protective gear and maintaining hygiene procedures which reduce productivity.

It appears that the 15-year average tenure of UTMD’s experienced manufacturing personnel continues to be a key to UTMD’s success.

Employees in manufacturing operations throughout the pandemic have been diligent and committed to work.

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 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.

Operating Expenses, comprised of General and Administrative (G&A) expenses, Sales and Marketing (S&M) expenses and Product Development (R&D) expenses, were $3,059 in 1Q 2021 (27.9% of sales) compared to $2,973 in 1Q 2020 (27.3% of sales).

Ignoring the Femcare (USD) identifiable intangible asset (IIA) amortization non-cash expense which was $38 higher than in 1Q 2020 due to a stronger GBP, and setting aside the same CSI IIA non-cash amortization expense in both periods, Operating Expenses were $1,404 (12.8% of sales) in 1Q 2021, and $1,356 (12.4% of sales) in 1Q 2020.

A weaker USD, in contrast to helping performance by increasing sales, in this instance hurt performance by increasing OUS Operating Expenses in USD terms by $35, accounting for 73% of the Operating Expense increase.

Consolidated G&A expenses were $2,545 (23.2% of sales) in 1Q 2021 compared to $2,419 (22.2% of sales) in 1Q 2020.

The G&A expenses in 1Q 2021 included $550 (5.0% of sales) of non-cash expense from the amortization of IIA resulting from the 2011 Femcare acquisition, which were $512 (4.7% of sales) in 1Q 2020.

The higher USD amortization expense was the result of the weaker USD, as the Femcare amortization expense in GBP was £399 in both periods.

In addition, both 1Q 2021 and 1Q 2020 G&A expenses included $1,105 (10.1% of sales) IIA amortization expense resulting from the purchase of the CSI remaining U.S.

exclusive Filshie distribution rights.

Excluding both Filshie-related non-cash IIA amortization expenses, G&A expenses were $890 (8.1% of sales) in 1Q 2021 compared to $802 (7.4% of sales) in 1Q 2020.

The change in FX rates increased 1Q 2021 OUS G&A expenses excluding IIA amortization expense by $27.

The $61 higher 1Q 2021 constant currency G&A expenses were due primarily to higher G&A salaries and accrued bonuses, plus an $18 higher stock option expense.

S&M expenses were $384 (3.5% of sales) in 1Q 2021 compared to $419 (3.8% of sales) in 1Q 2020.

The change in FX rates increased 1Q 2021 OUS S&M expenses by $8.

The $43 lower 1Q 2021 constant currency S&M expenses were due primarily to a reduction of outside sales representatives in the UK.

R&D expenses in 1Q 2021 were $130 (1.2% of sales) compared to $135 (1.2% of sales) in 1Q 2020.

Since almost all R&D is being carried out in the U.S., there was negligible FX rate impact.

Summary comparison of (USD) consolidated Operating Expenses:

CSI IIA amortization

Femcare IIA amortization

All Other G&A Expenses

Total Operating Expenses:

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 2020 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:

IIA amortization expense

All other G&A expense

Total G&A Expenses:

Percent of Sales:

IIA amortization expense

All other G&A expense

Total G&A Expenses:

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.

In summary, after subtracting the higher Operating Expenses from higher Gross Profit, Operating Income in 1Q 2021 was $3,887 (35.5% of sales) compared to $3,863 (35.4% of sales) in 1Q 2020.

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 UK, and GBP cash balances in Ireland, in USD terms;

and 3) losses from disposition of assets.

Non-operating income includes 1) investment income from cash deposit balances;

2) rent of underutilized property;

3) royalties received from licensing the Company’s technology;

4) gains from dispositions of assets;

and 5) gains from remeasuring the value of EUR cash bank balances in the UK, and GBP cash balances in Ireland, in USD terms.

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.

In 3Q 2020 and 3Q 2019, gains or losses from remeasurement of the value of foreign currency bank balances were negligible.

In 9M 2020, UTMD recognized a $41 gain from remeasurement of the value of foreign currency bank balances compared to a $44 loss in 9M 2019.

Royalties received were $5 in 3Q 2020 compared to $0 in 3Q 2019, and $10 in 9M 2020 compared to $6 in 9M 2019.

Interest earned on cash balances were $2 and $64 in 3Q and 9M 2020 respectively, compared to interest of $61 and $199 in 3Q and 9M 2019 respectively.

Net non-operating expense, or net non-operating income, results from 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.

Net non-operating income in 1Q 2021 was $11 compared to $125 in 1Q 2020.

Despite higher cash balances in 1Q 2021 compared to 1Q 2020, UTMD received $60 less in interest income.

In addition, instead of a gain of $44 at the end of 1Q 2020 from remeasurement of foreign currency bank balances, UTMD realized a $10 loss at the end of 1Q 2021.

f) Income Before Income Taxes (EBT)

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Consolidated 1Q 2021 EBT was $3,898 (35.6% of sales) compared to $3,988 (36.6% of sales) in 1Q 2020.

Consolidated 9M 2020 EBT was $9,553 (31.7% of sales) compared to $13,150 (37.5% of sales) in 9M 2019.

The EBT of Utah Medical Products, Inc.

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 2020 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:

Component of EBITDA

Depreciation of fixed assets

Amortization of patent expenses

Amortization of Femcare IIA

Amortization of CSI distribution agreement IIA

The $90 (2.3%) lower 1Q 2021 EBT compared to 1Q 2020 was due to $114 lower net non-operating income from less interest received on cash balances and a difference in the remeasurement of foreign currency bank balances.

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, 1Q 2021 consolidated EBT excluding the remeasured bank balance currency gain or loss and interest expense (“adjusted consolidated EBITDA”) was $5,776 compared to $5,772 in 1Q 2020.

UTMD’s adjusted consolidated EBITDA as a percentage of sales was 52.7% in 1Q 2021 compared to 52.9% in 1Q 2020.

Management believes that this operating metric provides meaningful supplemental information to both management and investors and confirms UTMD’s continued excellent financial operating performance.

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:

Depreciation Expense

Femcare IIA Amortization Expense

CSI IIA Amortization Expense

Other Non-Cash Amortization Expense

Stock Option Compensation Expense

Remeasured currency (gains) or losses

Adjusted Consolidated EBITDA:

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.

Interest Expense

Remeasured Foreign Currency Balances

UTMD non-US GAAP EBITDA:

g) Net Income

Net Income is EBT minus a provision for income taxes.

Net 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.

Net Income in 1Q 2021 was $3,024 (27.6% of sales), which was $116 (3.7%) lower than 1Q 2020 NI of $3,140 (28.8% of sales).

The lower NI was due to the lower NOI and a higher estimated consolidated income tax provision rate.

The average consolidated income tax provisions (as a percent of EBT) in 1Q 2021 and 1Q 2020 were 22.4% and 21.3%, respectively.

The impact of the higher income tax provision rate for 1Q 2021 was $45 lower NI.

The higher consolidated tax provision rate resulted from a shift in taxable income among U.S.

and foreign subsidiaries with differing income tax rates.

The basic rates in each of the sovereignties were the same as in the prior year.

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).

EPS are consolidated Net Income divided by the weighted average 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 1Q 2021 were $0.827 compared to $0.843 in 1Q 2020.

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.

EPS were just 1.9% lower than in 1Q 2020, in contrast to NI being 3.7% lower, due to fewer diluted shares outstanding.

Diluted shares were 3,655,256 in 1Q 2021 compared to 3,724,156 in 1Q 2020.

The lower diluted shares in 1Q 2021 were the result of 87,000 shares repurchased during 2020, offset by employee option exercises, a new employee option award of 26,300 shares in late March 2020 offset by a lower dilution factor for unexercised options.

The full EPS benefit of 2020 share repurchases will be felt as NI increases during the remainder of 2021.

The number of shares used for calculating EPS was higher than ending 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 1Q 2021 were 3,645,760 compared to 3,643,035 at the end of calendar year 2020.

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 difference was due to 2,725 shares in employee option exercises during 1Q 2021.

For comparison, outstanding shares were 3,642,431 at the end of 1Q 2020.

The total number of outstanding unexercised employee and outside director options at March 31, 2021 was 65,711 at an average exercise price of $68.58, including shares awarded but not yet vested.

This compares to 77,315 unexercised option shares at the end of 1Q 2020 at an average exercise price of $64.71/ share, including shares awarded but not vested.

The number of shares added as a dilution factor in 1Q 2021 was 11,168 compared to 17,313 in 1Q 2020.

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.

No options have been awarded to date in 2021.

UTMD paid $1,038 ($0.285/share) in dividends to stockholders in 1Q 2021 compared to $1,042 ($0.280/ share) paid in 1Q 2020.

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.

Dividends paid to stockholders during 1Q 2021 were 34% of NI.

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.

In September 2020, UTMD repurchased 7,000 shares at $78.67/ share.

No shares have been repurchased to date in 2021.

The Company retains the strong desire and financial ability for repurchasing its shares at a price it believes is attractive for remaining stockholders.

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 2020 was 6% compared to annualized ROE of 11% in 9M 2019.

Before the payment of dividends, annualized ROE in 9M 2020 was 10% compared to 15% in 9M 2019.

The lower ROE before dividends in 9M 2020 was due to an 8% increase in average accumulated stockholders’ equity together with a 29% 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 2020 was $79.87, down 26% from the $107.90 closing price at the end of 2019.

UTMD’s closing share price at the end of 1Q 2021 was $86.60, up 3% from the $84.30 closing price at the end of 2020.

The closing share price at the end of 1Q 2020 was $94.05.

i) Return on Equity (ROE)

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.

Annualized ROE (before stockholder dividends) in 1Q 2021 was 12% and in 1Q 2020 was 13%.

The lower ROE in 1Q 2021 was primarily due to 6% higher average Stockholders’ Equity.

Targeting a high ROE of 20% remains a key financial objective for UTMD management.

ROE can be increased by increasing Net Income, and/or by reducing Stockholders’ Equity by paying cash dividends to stockholders or by repurchasing shares.

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 $14,359 in 9M 2020 compared to $11,415 in 9M 2019.

The $2,944 higher cash provided by operating activities in 9M 2020 was due primarily to a $6,187 difference from 1) 1,184 decreased trade accounts receivable and inventories compared to a $2,588 increase in 9M 2019, yielding a significant $3,772 working capital change difference in the two periods, 2) a $651 increase in accrued expenses compared to a $1,023 decrease in 9M 2019, yielding another $1,674 working capital change difference in the two periods, 3) $363 higher intangible asset amortization expense, and 4) $378 lower decrease in deferred income taxes, minus 1) $2,983 lower net income and 2) $251 higher decrease in accounts payable.

Capital expenditures for property and equipment (PP&E) were $806 in 9M 2020 compared to $251 in 9M 2019.

The higher capital expenditures were due to a new roof on the Midvale facility and investment in new manufacturing capabilities in Ireland.

There were no capital expenditures for intangible assets in 9M 2020 compared to $21,000 in 9M 2019 for the purchase of the remaining life of CSI’s exclusive U.S.distribution rights for the Filshie Clip System.

UTMD made cash dividend payments of $3,097 in 9M 2020 compared to $3,083 in 9M 2019.

The Company used $6,976 of its cash to repurchase 87,000 of its own shares in 9M 2020 compared to using $398 of its cash to repurchase 5,000 of its own shares during 9M 2019.

In 9M 2020, UTMD received $282 and issued 5,614 shares of its stock upon the exercise of employee and director stock options.

Option exercises in 9M 2020 were at an average price of $50.15 per share.

In comparison, in 9M 2019 the Company received $222 and issued 5,629 shares of stock on the exercise of employee and director stock options.

Option exercises in 9M 2019 were at an average price of $39.53 per share.

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:

Net Income provided $116 less to cash in 1Q 2021 than in 1Q 2020.

Other differences in cash provided during the two periods were a $325 higher increase in accrued expenses, a $49 greater reduction in inventories and a $51 increase in accounts payable (A/P) compared to a $31 A/P decrease in 1Q 2020, offset by $111 lower deferred income taxes and a $67 increase in accounts receivable (A/R) compared to a $231 A/R decrease in 1Q 2020.

Capital expenditures for property and equipment (PP&E) were $10 in 1Q 2021 compared to $454 in 1Q 2020 when UTMD had invested in a state-of-art testing machine for its specialized pressure transducers for its bio-pharmaceutical OEM customer, and a new molding machine for increased capacity.

During the remainder of 2021, UTMD intends to duplicate the testing machine for its Ireland manufacturing facility and make additional investments in increasing capacity for the same OEM customer.

Depreciation of PP&E was $163 in 1Q 2021 compared to $175 in 1Q 2020.

Cash dividends paid to stockholders in 1Q 2021 were $1,038 compared to $1,042 in 1Q 2020.

Dividends were lower despite being about 2% higher per share as a result of share repurchases.

In 1Q 2021, UTMD received $89 and issued 2,725 shares of its stock upon the exercise of employee stock options.

Option exercises in 1Q 2021 were at an average price of $32.59 per share.

In comparison, in 1Q 2020 UTMD received $47 and issued 674 shares of its stock upon the exercise of employee stock options.

Option exercises in 1Q 2020 were at an average price of $70.47 per share.

Management believes that current cash balances, income from operations and effective management of working capital will provide the liquidity needed to survive the negative economic effects of government responses to the COVID-19 pandemic.

As it did in 2020, during the remainder of 2021 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;

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k) Assets and Liabilities

September 30, 2020 total consolidated assets were $107,072, a net decrease of $2,715 from December 31, 2019.

Net intangible assets declined by $5,397, inventories declined by $609 and receivables declined by $466.

Offsetting that combined $6,472 asset decline was a $3,507 increase in cash and a $308 increase in PP&E net of $495 in depreciation.

As a result of the increase in cash, consolidated current assets increased $2,375.

UTMD’s Ireland subsidiary EUR-denominated assets and liabilities on September 30, 2020 were translated into USD at an FX rate 4.4% higher (stronger EUR relative to the USD) than the FX rate at the end of 2019.

UTMD’s UK subsidiary GBP-denominated assets were translated into USD at an FX rate 2.6% lower (weaker GBP) than the FX rate at the end of 2019.

UTMD’s Australia subsidiary AUD-denominated assets were translated into USD at an FX rate 1.9% higher (stronger AUD) than the FX rate at the end of 2019.

UTMD’s Canada subsidiary CAD-denominated assets were translated into USD at an FX rate 2.7% lower (weaker CAD) than the FX rate at the end of 2019.

The net book value of consolidated property, plant and equipment increased $308 at September 30, 2020 from the end of 2019 due to period-ending changed FX rates, $806 in new asset purchases and $495 in depreciation.

Working capital (current assets minus current liabilities) was $53,632 at September 30, 2020 compared to $51,438 at December 31, 2019.

Consolidated receivables and inventories declined $466 and $609, respectively, but cash increased $3,507.

Accrued liabilities increased $649, primarily from $550 higher income taxes payable as UTMD had over-accrued income taxes payable by $514 at the end of 2019, and $244 higher customer deposits as a result of the timing of international distributor shipments in 4Q 2020 requiring prepayment.

UTMD management believes that its working capital remains sufficient to meet normal operating needs, new capital expenditures and continued cash dividend payments to stockholders.

September 30, 2020 net intangible assets (goodwill plus other intangible assets less amortization) declined $5,397 from the end of 2019.

No new intangible assets were acquired in 9M 2020.

At September 30, 2020, net intangible assets including goodwill were 36% of total consolidated assets compared to 40% at year-end 2019, and 42% at September 30, 2019.

The long term deferred tax liability (DTL) balance for Femcare IIA ($9,084 on the date of the acquisition) was $2,132 (£1,650) at September 30, 2020, compared to $2,239 (£1,688) at December 31, 2019, and $2,170 (£1,764) at September 30, 2019.

Reduction of the DTL occurs as the book/tax difference of IIA amortization is eliminated over the remaining useful life of the Femcare IIA (because the amortization expense is not tax deductible in the UK).

The DTL only declined $107 at September 30, 2020 from December 31, 2019, despite 9M 2020 amortization expense of $1,523, which reduced the DTL balance by $289.

The difference was due to a 2Q 2020 UK tax law change which increased the DTL balance by $225 (£182) plus the change in ending FX rates.

The UK decided to not reduce its corporate income tax rate from 19% to 17% beginning in 2Q 2020, as previously enacted.

(The $225 increase in deferred UK taxes over the following six years was also booked in the 2Q 2020 tax provision, reducing 9M 2020 net income $225.)

UTMD’s total debt ratio (total liabilities/ total assets) as of September 30, 2020 was 8%, including a remaining $2,074 REPAT tax liability payable over another five years.

The total debt ratio as of December 31, 2019 was also 8%, and as of September 30, 2019 was 9%.

The $2,715 decrease in total liabilities and equity (same as total assets) was primarily due to a $2,677 September 30, 2020 ending decrease in stockholders’ equity compared to December 31, 2019.

Stockholders’ equity was reduced during 9M 2020 by $10,074 from share repurchases and dividends paid to stockholders, offset by $7,386 net profit accumulated during 9M 2020.

UTMD’s March 31, 2021 Balance Sheet, in the absence of debt, continued to strengthen.

March 31, 2021 total consolidated assets increased $2,643 from December 31, 2020 to $114,388.

The increase was due to a $4,442 increase in cash and investments, offset by an $89 decrease in current assets other than cash, $239 lower net fixed assets (property, plant and equipment) and $1,471 lower net intangible assets.

The increase in cash was due to cash generated from operations less $1.0 million payment of cash dividends to stockholders, plus some changes in working capital.

Current assets as a whole increased $4,353 while current liabilities as a whole increased $777, yielding a $3,577 increase in working capital to $62,048.

The decrease in current assets other than cash resulted primarily from a $247 decrease in consolidated inventories.

Average inventory turns improved to 2.6 in 1Q 2021 compared to 2.5 for the 2020 year.

Accounts receivable increased $53 due to slightly higher sales and the average age of trade receivables at 34 days from date of invoice at March 31, 2021 compared to 31 days at December 31, 2020.

Despite the working capital increase, UTMD’s 16.4 current ratio at December 31, 2020 declined to 14.6 at March 31, 2021 primarily due to a higher percentage increase in accrued liabilities than the increase in cash.

Lower net fixed assets resulted from $10 in capital expenditures, $163 in depreciation and the impact of the period-to-period foreign currency exchange (FX) rates for assets OUS.

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 1Q 2021 and the end of 2020 follow:

At March 31, 2021, net Intangible Assets decreased to 32.1% of total consolidated assets from 34.1% on December 31, 2020 because of the 1Q 2021 $1,664 amortization of identifiable intangibles offset by the impact of the higher FX rate for GBP intangible assets in the UK.

Current liabilities increased $777 primarily as a result of a $725 increase in accrued liabilities due to a $1,036 increase in accrued income taxes.

Long term liabilities declined $195 to $4,938 primarily as a result of $105 lower deferred revenue and income taxes, and an $83 decline in the deferred tax liability for the Femcare Ltd GBP IIA to $2,068 at March 31, 2021 compared to $9,084 on the date of the 2011 acquisition.

Reduction of the deferred tax liability occurs as the book/tax difference of IIA amortization is eliminated over the remaining useful life of the Femcare Ltd IIA.

UTMD’s total debt ratio (total liabilities/total assets) as of March 31, 2021 was 8.3% compared to 8.0% as of December 31, 2020.

l) Management's Outlook

As outlined in its December 31, 2019 SEC 10-K report, UTMD’s general plan for 2020 was to

Because of the negative COVID-19 impact on financial results which began in March 2020, UTMD expects that, in the remaining nine months of 2021, comparative results will be substantially better.

In any event, UTMD’s operating plan for 2021 remains to

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 U.S;

2) focus on effectively direct marketing the benefits of the Filshie Clip System in the U.S.;

3) introduce additional products helpful to clinicians through internal new product development;

4) continue to achieve excellent overall financial operating performance;

4) continue to achieve profitable overall financial operating performance and a stable working environment for employees;

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;

6) be vigilant for accretive acquisition opportunities which may be brought about by difficult burdens on small, innovative companies.

Although not on its plan relative to specific financial numbers due to the COVID-19 pandemic, the Company continues to effectively execute its general plan outlined above.

6) be vigilant for accretive acquisition opportunities which may be brought about by the current challenging economic environment on companies with more limited resources.

m) Accounting Policy Changes

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis