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Item 7. Management’s Discussion and Analysis

2023-03-27 compared with 2022-03-25 · 230 added, 265 removed, 271 unchanged (65% of the section changed)

5 unchanged sentences

The 2022-year financial results demonstrate Utah Medical Products, Inc.’s (Nasdaq:

UTMD’s) continuing performance improvement despite many challenges related to the COVID-19 pandemic including on-again/off-again restrictions on so-called nonessential medical procedures, supply chain disruption, high inflation on raw materials, freight and labor costs as well as a continued shortage of labor from higher employee turnover.

Because of UTMD’s unusual dip in 2020 financial performance, UTMD continues to report its income statement results compared to the same periods not only for 2021 compared to 2020, but also for 2021 compared to the pre-pandemic year of 2019.

In that regard, the Company exceeded its stated objective for 2021 to try to fully recover back to its 2019 financial performance.

UTMD management believes that the presentation of three years of annual income statement comparisons provides meaningful supplemental information to both management and investors due to the impact of several factors related to the COVID-19 pandemic including economic variations affecting foreign currency exchange rates for sales invoiced in foreign currencies, uneven customer demand from the timing of ups and downs in government restrictions on “nonessential” medical procedures, supply disruptions and inflation in input costs.

UTMD’s) continuing excellent operating performance despite many challenges related to supply chain disruption, high input cost inflation as well as a continued shortage of labor with higher employee turnover.

The Company exceeded its beginning of year financial projections for 2022.

Consolidated Income Statement

2022 Compared to 2021

2021 Compared to 2019

Worldwide Revenues

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Earnings Per Share (US GAAP)

For perspective, as stockholders may recall, total worldwide revenues for the 2020 pandemic year were 10% lower than in pre-pandemic 2019.

Sales outside the U.S.

(OUS) were more negatively affected by the reaction to the pandemic than inside the U.S., and recovered more slowly in 2021.

Direct to end-user sales, which drive UTMD’s overall profitability, were 14% lower for the 2020 pandemic year.

Operating Income in 2020 was 22% lower than in pre-pandemic 2019.

UTMD maintained its manufacturing operations in the U.S.

and Ireland throughout the pandemic, without government assistance, in order to support important clinical needs of patients.

During the pandemic, UTMD protected its critical mass of overhead resources and did not adjust relative to the decline in sales, which proved to be a good decision given 2021 results and future resource needs.

A comparison of 2021 bottom line results with the results of 2020 and 2019, according to U.S.

Generally Accepted Accounting Principles (US GAAP), is affected by some income tax provision adjustments not related to normal operations:

1) in 4Q 2019, net income was increased $582 ($.156 increase in EPS) as a result of final adjustments made to state of Utah tax estimates following the December 2017 U.S.

“Tax Cuts and Jobs Act” (TCJA), enacted in late 2017;

2) in 2Q 2020, net income was decreased $225 ($.061 decrease in EPS) by a long term deferred tax liability increase on the balance of Femcare intangible assets (the amortization of which is not tax-deductible in the UK) as a result of a delay in the enacted UK income tax rate reduction, and 3) in 2Q 2021, net income was decreased $390 ($.107 decrease in EPS) by a long term deferred tax liability increase on the balance of Femcare intangible assets (the amortization of which is not tax-deductible in the UK) as a result of an enacted increase in the UK income tax rate effective in 2023.

The 2020 $225 increase in deferred UK taxes over the following six years, and the 2021 $390 increase in deferred UK taxes from 2023 through 2026, according to US GAAP, must be booked in the quarter in which the tax law change was enacted.

The UK decided to not reduce its corporate income tax rate from 19% to 17% beginning in 2Q 2020, as was previously enacted, and then in 2Q 2021 decided to increase its corporate income rate to 25% as of April 1, 2023.

UTMD management believes that the presentation of results excluding the unfavorable deferred tax liability adjustment to its 2020 and 2021 net income and the favorable U.S.

tax-related adjustment to 2019 net income provides meaningful supplemental information to both management and investors that is more clearly indicative of UTMD’s operating results in 2021 compared to 2020 and 2019.

Please note that the non-US GAAP exclusions only affects Net Income and Earnings Per Share.

All other income statement categories at and above the EBT line were unaffected by the UK tax rate adjustments.

Excluding the 2021 and 2020 deferred tax liability increases and concomitant “one-time” income statement tax provision increase resulting from the enactment of the UK corporate income tax changes, and favorable tax provision adjustment in 2019 related to the U.S.

TCJA, UTMD’s non-US GAAP Net Income and Earnings Per Share (EPS) percentage changes follow:

For perspective, 25% of UTMD’s total USD consolidated worldwide revenues (sales) were invoiced in foreign currencies.

Translating 2022 foreign currency sales into USD at the same exchange rates as in 2021 (“constant currency” sales) would have resulted in a 9.5% increase in 2022 worldwide revenues, with an 18.2% increase in sales outside the U.S.

In other words, constant currency 2022 worldwide revenues were $53,715.

Although UTMD’s sales in 2022 were helped by an approximate 7% average increase in UTMD unit prices, costs of manufacturing increased more than that, resulting in a lower gross profit margin (GPM).

Despite an unusual litigation expense year, with better absorption of fixed USD operating costs, notably amortization of identifiable intangible assets, and, in this case, a favorable foreign currency exchange (FX) impact on OUS expenses, UTMD’s Operating Income Margin was less diluted than its GPM.

Combined with Operating Income, higher non-operating income, predominantly from interest on cash balances, leveraged the increase in Earnings Before Income Tax (EBT) to be greater than UTMD’s increase in revenues.

The further leverage in bottom line results (Net Income and Earnings Per Share) compared to 2021, was the result of an unfavorable adjustment in UTMD’s income tax provision in the prior year, which was not related to normal operations.

According to U.S.

Generally Accepted Accounting Principles (US GAAP), Net Income in 2Q 2021 was decreased $390 ($.107 decrease in EPS) by a long term deferred tax liability increase on the balance of Femcare intangible assets (the amortization of which is not tax-deductible in the UK) as a result of an enacted increase in the UK income tax rate from 19% to 25% effective beginning in April 2023.

That is, the 2021 $390 increase in deferred UK taxes from 2023 through 2026, according to US GAAP, had to be booked in the quarter in which the tax law change was enacted.

UTMD management believes that the presentation of results excluding the unfavorable deferred tax liability adjustment to 2021 Net Income provides meaningful supplemental information to both management and investors that is more clearly indicative of UTMD’s operating results in 2022 compared to 2021.

Please note that the non-US GAAP exclusion only affects Net Income and Earnings Per Share (EPS).

All other income statement categories at and above the EBT line were unaffected by the UK income tax rate adjustment.

Excluding the 2021 deferred tax liability increase and concomitant 2021 income tax provision increase resulting from the enactment of the UK corporate income tax change, UTMD’s 2022 non-US GAAP Net Income and Earnings Per Share (EPS) percentage changes are more modest and consistent with its increase in EBT, as follows:

Consolidated Income Statement

2022 Compared to 2021

2021 Compared to 2019

Net Income (Non-US GAAP)

EPS (Non-US GAAP)

Key profit margins (profits as a percentage of sales) in 2021 compared to 2020 and 2019 calendar years follow:

Key profit margins (profits as a percentage of sales) in 2022 compared to 2021 follow:

Gross Profit Margin (GPM)

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Net Income Margin per US GAAP

Profit margins in 2021 recovered to be consistent with UTMD’s pre-pandemic performance.

In 2020, Gross Profit declined more than Sales as a result of less absorption of fixed overheads and marginal costs associated with the pandemic including personal protective equipment for employees, cleaning supplies, extra pay to encourage employees to come to work, pay continuation beyond normal sick pay and accrued vacation pay for those quarantined with symptoms or exposed to someone with symptoms, lower productivity as a result of social distancing and higher costs levied by some suppliers and service providers.

In contrast and despite higher variable costs in 2021, UTMD’s 2021 Gross Profit increased more than Sales due to lower U.S.

employee medical plan costs and improved labor productivity, in addition to better absorption of fixed manufacturing overhead expenses.

In 2020, Operating Income was leveraged down from lower GP compared to 2019 primarily due to the fixed $6,470 noncash expense resulting from amortizing Identifiable Intangible Assets (IIA) which resulted from the purchase of Femcare in 2011 and the remaining life of the U.S.

exclusive distribution rights for the Filshie Clip System from CooperSurgical Inc.

(CSI) in 2019.

Also, the CSI IIA amortization expense in 2019 was only $6,089 because of a partial year of amortization plus a stronger USD in 2019 which reduced fixed GBP Femcare IIA amortization expense in USD terms.

In contrast, the fixed IIA amortization expenses, which are included in General & Administrative (G&A) operating expense, were diluted by substantially higher sales in 2021 than in 2020 and a 6.6% stronger GBP in 2021 relative to the 2020 USD, which reduced the USD value of the fixed GBP Femcare IIA amortization expense.

Non-US GAAP Net Income and EPS increased the same as Operating Income in 2021 compared to 2020 because the consolidated total income tax rate prior to US GAAP tax adjustments was the same in both years at 20.4%.

Measures of the Company’s liquidity and overall financial condition improved as of the end of 2021 compared to the end of 2020 with year-end working capital up 19% and Stockholders’ Equity up 4% despite a $7,309 special dividend paid to stockholders near the end of 2021 which reduced both cash and Stockholders’ Equity by that same amount.

Measures of the Company’s liquidity and overall financial condition improved as of the end of 2022 compared to the end of 2021 with year-end working capital up 21% and Stockholders’ Equity up 7% despite $3,163 in dividends paid to stockholders and $2,495 in share repurchases during 2022 which reduced both cash and Stockholders’ Equity by $5,658.

The improvement was the result of continued strong positive cash flow from normal operations.

In total, UTMD paid $11,465 in stockholder cash dividends in 2021 compared to $4,116 in 2020.

In 2020, the Company also used $6,976 of its cash to repurchase its shares.

UTMD did not repurchase shares in 2021.

The Company also used $552 in cash in 2021 to invest in new manufacturing equipment for a future need in addition to maintaining Property, Plant and Equipment (PP&E) in good working order.

In spite of the combined $12,017 use of cash for stockholder dividends and capital expenditures, UTMD’s cash equivalent balances at the end of 2021 increased $9,384 to $60,974 from $51,590 at the end of 2020.

In comparison, UTMD paid $11,465 in stockholder cash dividends in 2021, with no share purchases.

The Company also used $809 in cash in 2022 along with $552 in 2021 to invest in new manufacturing equipment and fixtures, as well as maintaining existing Property, Plant and Equipment (PP&E) in good working order.

The two-year capital expenditures exceeded depreciation by $113.

More specifically, UTMD’s cash equivalent balances at the end of 2022 increased $14,077 to $75,052 from $60,974 at the end of 2021.

Working capital increased $14,546 to $83,959 at the end of 2022 from $69,412 at the end of 2021.

Total liabilities declined $425.

Total liabilities increased $1,121 despite an $1,010 reduction in UTMD’s deferred tax liability and long-tern Repatriation Tax liability, primarily because of the early dividend payment in 4Q 2021.

The Company remained without debt.

UTMD’s total debt ratio (total liabilities to total assets) was 8% at the end of 2022 compared to 7% at the end of 2021.

Stockholders’ Equity at the end of 2021 increased to $107,138 from $102,822 at the end of 2020, despite the $11,465 in 2021 cash dividends to stockholders which reduce Stockholders’ Equity.

Stockholders’ Equity at the end of 2022 increased to $114,254 from $107,138 at the end of 2021, despite the aforementioned $5,658 in 2022 cash dividends and share repurchases which reduced Stockholders’ Equity.

Productivity of Fixed Assets and Working Capital Assets .

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This compares to $115,636 total assets at the end of 2021 comprised of $73,158 in current assets, $11,067 in consolidated net PP&E and $31,412 in net intangible assets.

Total asset turns (total consolidated sales divided by average total assets for the year) in 2021 were 43% compared to 38% in 2020, as sales increased faster than the increase in average assets.

Current assets increased $10,896 due to the $9,384 increase in year-end cash and investments, $1,028 higher accounts and other receivables, $374 higher year-end inventories and $110 higher other current assets, all due to the higher sales activity.

Total asset turns (total consolidated sales divided by average total assets for the year) in 2022 were 44% compared to 43% in 2021, as sales increased slightly faster than the increase in average assets.

Current assets increased $16,761 due to the $14,077 increase in year-end cash and investments, $407 higher accounts and other receivables, $2,217 higher year-end inventories and $59 higher other current assets, due to the higher sales activity and higher raw materials purchases relative to demand.

Year-end 2022 and 2021 cash and investment balances were $75,052 and $60,974, representing 61% and 53% of total assets, respectively.

Net (after allowance for doubtful accounts) year-end trade accounts receivable (A/R) balances were $1,025 higher at the end of 2021 compared to 2020.

This due to 4Q 2021 sales $903 higher than in 4Q 2020, and average days in A/R of 36 days based on 4Q trade sales instead of 31 days at the end of 2020.

Net (after allowance for doubtful accounts) year-end trade accounts receivable (A/R) balances were $407 higher at the end of 2022 compared to 2021 due to 4Q 2022 sales $661 higher than in 4Q 2021, and average days in A/R of 37 days based on 4Q trade sales instead of 36 days at the end of 2021.

Average days in A/R from date of invoice of 37 days is well within UTMD’s objective.

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The Company believes any older A/R will be collected or are within its reserve balances for uncollectible amounts.

Inventories at 2021 year-end were only 6% higher from the end of 2020, despite a 16% increase in annual shipments.

Inventories at 2022 year-end were 34% higher from the end of 2021.

Working capital (current assets minus current liabilities) at year-end 2022 was 21% higher at $83,959 compared to $69,412 at year-end 2021.

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distribution rights for the Filshie Clip System from CSI, of which $17,316 has been amortized through year-end 2022.

The remaining CSI IIA will be fully amortized in less than 2 more years.

The remaining CSI IIA will be fully amortized in 4Q 2023.

UTMD’s goodwill balance from prior acquisitions including Femcare, Columbia Medical, Gesco and Abcorp was $13,354 at the end of 2022.

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The 2023 non-cash amortization expense (included as part of consolidated G&A operating expenses) of Femcare IIA will be £1,589, or $1,923 if the USD/GBP average FX rate is 1.21.

In other words, the 2022 Femcare IIA amortization expense is expected to be about $28 lower because of a slightly lower GBP amount and a projected weaker GBP relative to the USD.

In other words, the 2023 Femcare IIA amortization expense is expected to be about $42 lower because of an average projected weaker GBP relative to the USD.

Both the 2022 and 2021 non-cash amortization expense of CSI IIA was $4,421.

The 2022 operating expense resulting from amortization of CSI IIA will again be $4,421.

The 2023 operating expense resulting from final full amortization of CSI IIA will be $3,684.

Liabilities .

As a reminder, payments for the Federal and State repatriation (REPAT) tax liability which resulted from the U.S.

TCJA enacted in 2017 is 8% of the respective tax liability per year for the first five years, 15% in the sixth year, 20% in the seventh year and 25% in the eighth year.

Calendar year 2022 represents the fifth year, but the $220 current liability is somewhat less than 8% of UTMD’s $2,792 total REPAT tax liability due to earlier overpayment because earlier Federal and State payments were based on an initial estimate which was conservatively too high at $6,288 compared to the final adjusted estimate of $2,792.

The long term $1,675 REPAT tax liability, to be paid in years 2023-2025, represents 60% of the total liability.

Year-end 2021 current liabilities were $45 lower than at the end of 2020.

Ending accrued liabilities were $159 lower due primarily to $585 higher OEM customer deposits and $279 higher accrued payroll and bonuses offset by $1,038 lower dividends payable.

TCJA enacted in 2017 were 8% of the respective tax liability per year for the first five years, and will be 15% in the sixth year, 20% in the seventh year and 25% in the eighth year.

UTMD’s total REPAT tax liability was $2,792.

Calendar year 2023 represents the sixth year, so $419 is the current liability at 15% of the total liability, and $1,256 is the long term REPAT tax liability to be paid in years 2024-2025, representing the remaining 45%.

Year-end 2022 current liabilities were $2,214 higher than at the end of 2021.

Ending accrued liabilities were $1,558 higher due primarily to $398 higher OEM customer deposits and an accrued stockholder dividend payable.

The $1,070 stockholder dividend declared in 4Q 2022 was paid in January 2023, whereas the $7,309 dividend declared in 4Q 2021 was paid in December 2021.

Total liabilities were $425 lower at the end of 2021 compared to the end of 2020.

Total liabilities were $1,121 higher at the end of 2022 compared to the end of 2021.

The resulting 2022 year-end total debt ratio was 8% compared to 7% at the end of 2021.

The year-end 2021 DTL balance created as a result of the fifteen-year deferred tax consequence of the amortization of Femcare’s IIA was $2,105, down from $2,151 at the end of 2020.

The relatively small $47 decline in this DTL considering the $2,189 in 2021 amortization of IIA was due to the UK tax law change in 2Q 2021 which increased the DTL $390, together with a difference in GBP FX rate at the end of 2021.

Without the tax law change, the theoretical tax effect at the 2021 19% tax rate for the 2021 IIA amortization expense would have been $416.

The year-end 2022 Deferred Tax Liability balance created as a result of the fifteen-year deferred tax consequence of the amortization of Femcare’s IIA was $1,513, down from $2,105 at the end of 2021.

The difference in the $592 decline compared to the $416 tax effect of 19% (2022 UK tax rate) times $2,189 in 2022 amortization of IIA was due to the difference in the GBP FX rate on the remaining DTL balance at the end of 2022 as well as the USD/GBP currency exchange conversion of the IIA amortization during 2022.

In addition to liabilities stated on the balance sheet, UTMD has operating lease and purchase obligations described in Note 14 and Note 12, respectively, to the financial statements.

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The term “trade” means sales to customers which are not part of UTMD.

Each UTMD entity had 2021 intercompany sales of components and/or finished devices to other UTMD entities.

The following table shows the 2021 USD denominated revenues by sales channel compared to 2020 and 2019.

Australia domestic sales included sales directly to New Zealand medical facilities beginning in 4Q 2020:

Each UTMD manufacturing entity had 2022 intercompany sales of components and/or finished devices to other UTMD entities.

The following table shows the 2022 USD-denominated revenues by sales channel compared to 2021.

Because domestic sales in foreign countries were invoiced in native currencies, the comparison in USD terms includes the change in foreign currency translation (FX) rates.

In other words, just the FX rate relative to the USD in 2022 compared to 2021, reduced Canada domestic sales by 3.7%, Ireland domestic sales by 11.1%, UK domestic sales by 10.7%, France domestic sales by 10.9% and Australia/NZ domestic sales by 7.7%.

Revenue [USD denominated]

2022 Compared to 2021

2021 Compared to 2019

domestic (excluding OEM)

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Worldwide Revenues

Except for Canada, sales in all channel categories rebounded well from 2020.

Whereas UTMD total consolidated sales in 2021 were almost 5% higher than in the pre-pandemic year of 2019, direct sales in Europe and Canada remained 20-30% lower than in 2019, indicating a slower recovery from the pandemic in those regions.

Global consolidated trade sales in 2021 were $49,054 compared to $42,178 in 2020 and $46,904 in 2019.

The $4,726 (10.1%) lower sales in 2020 from 2019 were primarily the result of restrictions on medical procedures that government officials worldwide deemed nonessential during the COVID-19 pandemic, presumably to conserve medical facility capacity.

domestic sales including OEM were up $4,793 (+18.5%) in 2021, at $30,659 compared to $25,866 in 2020, and $27,493 in 2019.

OUS sales were up $2,083 (+12.8%) at $18,395 compared to $16,312 in 2020, and $19,411 in 2019.

In summary, UTMD total worldwide (WW) consolidated USD sales in 2022 at $52,281 were almost 7% higher than in 2021 at $49,054.

But direct sales OUS in foreign currencies were substantially reduced in USD terms by a stronger USD.

domestic sales including OEM were up $1,312 (+4.3%) in 2022 at $31,971 compared to $30,659 in 2021.

OUS sales including sales to foreign distributors were up $1,916 (+10.4%) at $20,311 compared to $18,395 in 2021.

Constant currency OUS sales were up 18.2%.

Domestic Sales .

domestic sales in 2021 were $30,659 (63% of total sales) compared to $25,866 (61% of total sales) in 2020, and $27,493 (59% of total sales) in 2019.

The components of the $4,793 higher 2021 domestic sales were $209 (3.3%) lower sales of the Filshie Clip System devices in the U.S., $3,069 (+47.3%) higher sales of components and finished devices used in other companies’ products (OEM customers), and $1,933 (+14.8%) higher direct sales of all other UTMD (non-Filshie) finished devices to domestic end-users.

Domestic sales in 2019 were $27,493.

domestic sales in 2022 were 4.3% higher at $31,971 (61% of total sales) compared to $30,659 (63% of total sales) in 2021.

Components of the $1,312 higher 2022 domestic sales were $857 (14.0%) lower sales of the Filshie Clip System devices in the U.S., $1,321 (+13.8%) higher sales of components and finished devices used in other companies’ products (OEM customers), and $848 (+5.7%) higher direct sales of all other UTMD (non-Filshie) finished devices to domestic end-users.

Domestic Filshie Clip System sales in 2022 were 16% of total U.S.

domestic sales compared to 24% in 2020 and 25% in 2019.

Filshie sales did not recover as well as the other domestic sales categories.

Looking forward to 2022, despite a continued recovery in overall surgical sterilization procedures including laparoscopic interval procedures, as there is a medical procedure trend in the U.S.

to choose salpingectomy versus tubal ligation for permanent contraception post C-Section, UTMD expects U.S.

domestic sales compared to 20% in 2021.

Filshie sales have not recovered as well as the other domestic sales categories since the COVID-19 pandemic.

Looking forward to 2023, there remains a medical procedure trend in the U.S.

to choose salpingectomy versus tubal ligation for permanent contraception post C-Section.

Despite this, UTMD expects U.S.

Filshie device sales in 2023 will remain about the same as in 2022.

Domestic OEM sales in 2022 were 34% of total U.S.

domestic sales compared to 25% in 2020 and 24% in 2019.

domestic sales compared to 31% in 2021.

UTMD sold components and finished devices to 146 different U.S.

companies in 2021, compared to 139 different companies in 2020 and 147 companies in 2019, for use in their product offerings.

Sales to UTMD’s largest OEM customer represented 82% of total domestic OEM sales in 2021 compared to 75% of total domestic OEM sales in both 2020 and 2019.

UTMD’s largest OEM customer markets biopharmaceutical manufacturing control systems which exclusively utilize UTMD’s pressure monitoring technology, and for which demand is booming.

If UTMD had had the manufacturing capacity primarily in terms of assembly operators in 2021, OEM sales would have been much higher.

Looking forward to 2022, UTMD again expects substantial growth in OEM sales as engineering projects for manufacturing expansion come to fruition.

Domestic direct end-user sales excluding the Filshie Clip System were 49% of total U.S.

domestic sales in 2021 compared to 51% in both 2020 and 2019.

Of UTMD’s four domestic direct product categories, neonatal products were $5,343 (22% higher), labor & delivery (L&D) products were $3,940 (7% higher), gynecology/ electrosurgery/ urology products excluding the Filshie Clip System were $4,837 (12% higher), and blood pressure monitoring devices were $873 (25% higher).

Sales OUS in 2021 were $18,395 (12.8% higher) compared to $16,312 in 2020.

OUS sales were $19,411 in 2019.

Europe and Canada were particularly affected by government restrictions during the pandemic.

companies in 2022 compared to 155 different companies in 2021, for use in their product-market offerings.

Sales to UTMD’s largest OEM customer represented 83% of total domestic OEM sales in 2022 compared to 82% of total domestic OEM sales in 2021.

UTMD’s largest OEM customer markets biopharmaceutical manufacturing control systems which exclusively utilize UTMD’s pressure monitoring technology, and for which demand continued to be strong.

Looking forward to 2023, UTMD expects demand for biopharmaceutical control systems to diminish relative to the recent past.

Domestic direct end-user sales excluding the Filshie Clip System (as well as OEM sales) were 50% of total U.S.

domestic sales in 2022 compared to 49% in 2021.

Of UTMD’s four domestic direct product categories, neonatal products were $707 higher (+13%), labor & delivery (L&D) products were $45 higher (+1%), gynecology/ electrosurgery/ urology products excluding the Filshie Clip System were $155 higher (+3%), and blood pressure monitoring devices were $59 lower (7%).

UTMD expects 2023 domestic direct sales of its well-established devices to increase at a low single-digit percentage rate.

Sales OUS in 2022 in USD terms were $20,310 (10.4% higher) compared to $18,395 in 2021.

Using the same FX rates as in 2021 (“constant currency”), 2022 OUS sales were $21,744 (18.2% higher).

Because a significant portion of UTMD’s OUS sales are invoiced in foreign currencies, changes in FX rates can potentially have a material effect on period-to-period USD-denominated sales.

Although a weaker USD in the first half of the year helped increase foreign currency sales in USD terms, the FX rate impact for the year 2021 was a minor factor compared to the negative impact of the pandemic on OUS sales.

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

The average rates from the applicable foreign currency to USD during 2022 compared to 2021 follow.

The average FX rates for 2019 are also listed for reference:

The sales weighted FX rate change in 2021 compared to 2020 was +4.9%.

In other words, consolidated USD sales in 2021 were increased $619 from what they would have been using the prior year’s FX rates.

Seventy-two percent of (USD denominated) 2021 OUS sales were invoiced in foreign currencies compared to 58% in 2020 and 66% in 2019.

As a portion of total USD consolidated sales, 27% of UTMD’s USD-equivalent sales were invoiced in foreign currencies in 2021 compared to 22% in 2020 and 27% in 2019.

The total foreign sales-weighted FX rate change impact on 2022 sales compared to 2021 was (9.9%).

In other words, consolidated USD sales in 2022 were reduced $1,433 from what they would have been using the prior year’s FX rates.

Sixty-four percent of (USD denominated) 2022 OUS sales were invoiced in foreign currencies compared to 72% in 2021.

As a portion of total USD WW consolidated sales, 25% of UTMD’s USD-equivalent sales were invoiced in foreign currencies in 2022 compared to 27% in 2021.

The GBP, EUR, AUD and CAD converted sales represented 6%, 14%, 2% and 3% of total 2022 USD sales, respectively.

This compares to 6%, 10%, 3% and 3% of total 2020 USD sales, and to 8% GBP, 11% EUR, 4% AUD and 4% CAD of total 2019 USD sales.

USD-denominated trade (excludes intercompany) sales of devices to OUS customers (excluding France) by UTMD’s Ireland facility (UTMD Ltd) were $7,439 in 2021 (39% higher) compared to $5,347 in 2020, and were $5,894 in 2019.

In addition, UTMD Ltd also sold devices that it had manufactured directly to France in 2021 due to BREXIT, which in prior years were sold to Femcare Ltd in the UK on an intercompany basis and then sold by Femcare Ltd directly to French medical facilities.

USD-denominated sales to France in 2021 were $1,424 (14% higher) compared to $1,253 in 2020, and were $1,785 in 2019.

Some sales, mostly to Northern Ireland, were invoiced in GBP which was up 6.6% in 2021 compared to the 2020 USD.

In addition, as the 2021 EUR was 3.2% higher relative to the 2020 USD, the total FX impact added $226 to Ireland’s total 2021 sales.

In 2021, UTMD’s UK subsidiary, Femcare Ltd., had $2,451 trade sales of devices to domestic UK and certain international distributor customers, up 12% compared to $2,183 in 2020.

The total FX impact added $170 in USD terms.

Femcare USD-denominated sales excluding France in 2019 were $3,596.

USD-denominated sales of devices to end-users in Australia by Femcare’s Australia distribution subsidiary (Femcare Australia Pty Ltd) were $1,705 (20% higher) in 2021 compared to $1,421 in 2020.

In 4Q 2020, UTMD converted from selling devices by Femcare in the UK to a third party distributor in New Zealand (NZ) to distributing devices directly to NZ medical facilities from Femcare Australia.

In addition, an 8.6% stronger AUD in 2021 added $135 in USD-denominated sales.

Femcare Australia sales in 2019, which did not include sales to NZ, were $1,706.

UTMD’s Canada distribution subsidiary (Utah Medical Products Canada, Inc.) had the weakest sales results of UTMD’s OUS subsidiaries.

USD-denominated sales of devices to end-users in Canada were $1,382 (7% lower) than $1,481 in 2020 despite a CAD which was 6.2% stronger than in the prior year.

The stronger CAD added $88, so 2021 sales were $1,294 (13% lower) in constant currency terms.

Canada sales were $2,107 in 2019.

This compares to 6%, 15%, 3% and 3% of total 2021 USD sales.

USD-denominated trade (excludes intercompany) sales of devices to OUS customers (excluding France) by UTMD’s Ireland facility (UTMD Ltd) were $9,478 in 2022 (27% higher despite an 11% weaker EUR) compared to $7,439 in 2021.

In addition, UTMD Ltd also sold devices that it had manufactured directly to France in 2022 due to BREXIT, which earlier were sold to Femcare Ltd in the UK on an intercompany basis and then sold by Femcare Ltd directly to French medical facilities.

USD-denominated sales to France in 2022 were $1,235 (13% lower with an 11% lower EUR) compared to $1,424 in 2021.

Some sales, mostly to Northern Ireland, were invoiced in GBP which was also 11% lower in 2022 compared to the 2021 USD.

The total FX rate change reduced Ireland’s USD-denominated sales by $897.

In 2022, UTMD’s UK subsidiary, Femcare Ltd., had $2,781 trade sales of devices to domestic UK and certain international distributor customers, 13% higher (despite an 11% weaker GBP) compared to $2,451 in 2021.

The total FX rate change reduced the UK’s USD-denominated sales by $381.

USD-denominated sales of devices to end-users in Australia and New Zealand by Femcare’s Australia distribution subsidiary (Femcare Australia Pty Ltd) were $1,267 (26% lower with an 8% lower AUD) in 2022 compared to $1,705 in 2021.

The weaker AUD in 2022 reduced USD-denominated Australia sales by $105.

UTMD’s Canada distribution subsidiary (Utah Medical Products Canada, Inc.) USD-denominated sales of devices to end-users in Canada were $1,294 (6% lower with a 4% lower CAD) compared to $1,382 in 2021.

The weaker CAD reduced Canada sales by $50.

UTMD groups its sales into four general product categories:

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* includes molded components and finished medical and non-medical devices sold to OEM customers.

Looking forward to 2022, continuing government restrictions on so-called “non-essential” medical procedures seems unlikely.

Although there remains much room for pandemic recovery in UTMD’s direct distribution OUS, UTMD projects a 3-4% stronger USD on the average which will offset the unit growth in direct foreign currency sales in USD terms.

OUS distributor order patterns vary and are less predictable, but UTMD’s largest OUS distributor has placed a fixed 2022 order for BPM devices that is $550 higher than in 2021 based on an average EUR FX rate of 1.13 in 2022.

Domestically, OEM sales are projected to be over $700 higher with projected capacity limits, but could be even higher if production worker hiring constraints in Utah become less severe.

A key to sales results will be retaining U.S.

Looking forward to 2023 sales, UTMD’s largest customer representing almost $11.6 million in 2022 WW consolidated revenues, including 83% of U.S.

OEM sales and 28% of Ireland’s international distributor sales, has provided mixed signals for demand for all of 2023.

UTMD is planning for a reduction in annual sales to this customer, even though shipments together with orders received to-date for the first nine months of 2023 for pressure transducer assemblies are higher than in 2022.

The actions of the U.S.

Federal Reserve to continue to increase interest rates because of sticky inflation, combined with a lack of a significant U.S.

recession, is likely to result in a stronger average USD in 2023 relative to 2022, resulting in a negative impact on about 25% of UTMD’s sales invoiced in foreign currencies.

Another key to 2023 sales results will be retaining U.S.

Filshie device sales at a similar level as in 2022.

Except for Filshie devices in the U.S., UTMD raised product prices across the board an average of about 5% in late 4Q 2021, which will benefit 2022 sales in comparison to 2021 assuming customer demand remains relatively inelastic.

In summary, management’s best estimate at this time is that 2022 revenues will be up in the range of mid-single digit percentage growth.

Offsetting the above possible negative factors, because of the sticky inflation in input costs, UTMD has raised its unit prices again in early 2023, and expects unit demand for its medical devices to end-users to remain stable.

In summary, management’s best estimate at this time is that 2023 consolidated WW revenues may be about the same as in 2022, but perhaps lower depending on OEM sales, without consideration for acquiring another source of revenues not currently in UTMD’s portfolio.

b) Gross Profit (GP) .

UTMD’s 2021 consolidated GP, the surplus after subtracting costs of manufacturing, which includes purchasing raw materials, forming components, assembling, inspecting, testing, packaging and sterilizing products, from net revenues, was $30,917 (63.0% of sales) compared to $25,548 (60.6% of sales) in 2020 and $29,466 in 2019 (62.8% of sales).

UTMD’s 2022 consolidated GP, the surplus after subtracting costs of manufacturing, which includes purchasing and transporting raw materials, forming components, assembling, inspecting, testing, packaging and sterilizing products, from net revenues, was $32,196 (61.6% of sales) compared to $30,917 (63.0% of sales) in 2021.

GP in 2022 increased $1,280 (+4.1%) with a 6.6% increase in revenues.

The Gross Profit Margin (GPM), which is GP divided by sales, expanded primarily due to the fact that a large portion of UTMD’s manufacturing expenses were fixed compared to the prior year.

Another way to say this is that in 2020, a greater decline in GP than in sales was a result of UTMD’s decision to not cut important manufacturing overhead resources in the same proportion as the decline in sales, which would sacrifice future capabilities just to maintain a short term GPM.

In addition to the lower absorption of fixed manufacturing overhead costs in 2020, there were two other categories of increased costs that reduced the 2020 GPM compared to 62.8% in 2019:

1) marginal costs associated with the COVID-19 pandemic including personal protective equipment for employees, cleaning supplies, extra pay to encourage employees to come to work, pay continuation beyond normal sick pay and accrued vacation pay for those quarantined with symptoms or exposed to someone with symptoms, lower productivity as a result of social distancing and higher prices levied by some suppliers and service providers, and 2) an unusually unfavorable year for UTMD’s self-insured health care plan in the U.S.

Self-insured health care plan costs in 2021 returned to be more consistent with prior years’ levels.

Despite higher variable costs in 2021, particularly freight on incoming materials and a cost of living adjustment for Utah and Ireland production workers, the GPM in 2021 recovered to be consistent with the pre-pandemic year of 2019.

In 2022, UTMD plans to help manage inflationary manufacturing cost pressures with administering higher prices for its devices, as and when necessary.

Nevertheless, management expects that manufacturing costs in 2022 will increase faster than revenues resulting in a lower GPM.

However, UTMD also expects that GP will still be higher than in 2021.

If sales increase as a mid-single digit percentage, then GP are projected to increase as a low single-digit percentage.

UTMD’s Ireland subsidiary’s (UTMD Ltd’s) GP was EUR 6,788 compared to EUR 4,198 in 2020 and EUR 2,908 in 2019.

The associated GPMs were 61.2% in 2021, 54.4% in 2020 and 43.1% in 2019.

Femcare UK 2021 GP was GBP 913 compared to GBP 1,495 in 2020 and GBP 3,884 in 2019.

The UK 2021 GPM was 46.3% compared to 56.0% in 2020 and 70.2% in 2019.

The transfer from the UK to Ireland of direct sales to France primarily explains the GP changes for both Ireland and the UK.

The Gross Profit Margin (GPM), which is GP divided by sales, contracted due to the fact that all components of manufacturing cost increased at a rate faster than the increase in revenues which included price increases to customers.

Manufacturing costs in Utah, where about 60% of the Company’s product revenues are manufactured, increased at a rate more than double UTMD’s average price increases, resulting in a lower U.S.

direct labor and raw material costs increased more than 10%, while manufacturing overhead (MOH) costs increased more than 20%.

The Company experienced an unfavorable year for its self-insured U.S.

health care plan, a doubling of freight for incoming materials and significantly more engineering dedicated to process improvements, all of which are included in MOH.

UTMD’s Ireland subsidiary’s (UTMD Ltd’s) 2022 GP was EUR 8,538 compared to EUR 6,788 in 2021.

The associated GPMs were 60.0% in 2022 and 61.2% in 2021.

Femcare UK 2022 GP was GBP 1,297 compared to GBP 913 in 2021.

The 2022 UK GPM was 52.0% compared to 46.3% in 2021.

A delayed substantial UK recovery in Filshie device sales after the COVID-19 pandemic explains the GPM improvement, as UK manufacturing overhead costs are relatively fixed.

Femcare Australia and Femcare Canada are simply distribution facilities for UTMD finished devices in their respective countries.

GP is the result of subtracting intercompany purchase prices of devices plus freight from sales.

Australia GP was AUD 1,399 (61.6% of sales) compared to AUD 1,194 (58.1% of sales) in 2020 and AUD 1,415 (57.7% of sales) in 2019.

Canada GP was CAD 907 (52.4%of sales) in 2021 compared to CAD 1,128 (57.2% of sales) in 2020 and CAD 1,670 (54.5% of sales) in 2019.

In the U.S., GP was $20,100 in 2021, $17,043 in 2020 and $19,180 in 2019.

GPMs were 55.8% in 2021, 54.2% in 2020 and 57.1% in 2019.

A summation of the above GP of each subsidiary will not yield UTMD’s consolidated total GP because of elimination of profit in inventory of intercompany goods.

GP is the result of subtracting intercompany purchase prices of devices, plus incoming freight, from revenues.

Australia 2022 GP was AUD 940 (51.4% of sales) compared to AUD 1,399 (61.6% of sales) in 2021.

Canada 2022 GP was CAD 870 (51.7% of sales) compared to CAD 907 (52.4% of sales) in 2021.

In the U.S., GP was $20,699 in 2022 compared to $20,100 in 2021.

GPM was 54.8% in 2022 compared to 55.8% in 2021.

A summation of the above GP of each subsidiary will not yield UTMD’s consolidated total GP because of elimination of profit in inventory of intercompany sales.

In 2023, UTMD has the objective to manage manufacturing cost pressures to maintain its GPM consistent with 2022.

c) Operating Income .

Operating Income results from subtracting operating expenses from GP.

Operating Income in 2021 was $18,880 (38.5% of sales) compared to $13,708 (32.5% of sales) in 2020 and $17,632 (37.6% of sales) in 2019.

On top of benefitting from a higher GPM, the higher 2021 Operating Income margin (Operating Income divided by sales) additionally reflected better absorption of relatively fixed IIA amortization expense, included in General and Administrative (G&A) operating expenses, which was 13.5% of sales in 2021 compared to 15.3% of sales in 2020 and 13.0% of sales in 2019.

Excluding the non-cash Femcare and CSI IIA amortization expenses, UTMD consolidated operating expenses were $5,427 (11.1% of sales) compared to $5,370 (12.7% of sales) in 2020 and $5,744 (12.2% of sales) in 2019.

In other words, holding operating expense (excluding the IIA amortization expense) growth to 1% while sales increased 16% and GP increased 21%, leveraged the overall growth in Operating Income to almost 38% compared to 2020.

The UTMD Ltd (Ireland) Operating Income margin in 2021 was 57.8% compared to 50.5% in 2020 and 38.5% in 2019.

Femcare UK’s Operating Income margin per US GAAP, which includes the IIA amortization expense of the 2011 acquisition, was negative in both 2021 and 2020 compared to 27.8% in 2019.

Femcare Australia’s 2021 Operating Income margin was 45.9% compared to 41.7% in 2020 and 38.6% in 2019.

Femcare Canada’s 2021 Operating Income margin was 34.5% compared to 40.7% in 2020 and 41.9% in 2019.

Operating Income in 2022 was $19,790 (37.9% of sales) compared to $18,880 (38.5% of sales) in 2021.

UTMD’s 2022 Operating Income margin (Operating Income divided by sales) contracted only 0.6 percentage points after its GPM contracted 1.4 percentage points.

This was due to the fact that Intangible Asset amortization expenses related to the Filshie Clip System (included in Operating Expenses) were better absorbed with higher sales, that is, were 1.3 percentage points lower than in 2021.

In addition, subsidiary operating expenses in foreign currencies were diminished when translated into USD in the same manner that foreign currency sales were diminished by a strong USD.

The UTMD Ltd (Ireland) Operating Income margin in 2022 was 57.2% compared to 57.8% in 2021.

Femcare UK’s Operating Income margin per US GAAP, which includes the IIA amortization expense of the 2011 acquisition, was negative in both 2022 and 2021.

Femcare Australia’s 2022 Operating Income margin was 30.9% compared to 45.9% in 2021.

Femcare Canada’s 2022 Operating Income margin was 37.3% compared to 34.5% in 2021.

UTMD’s 2022 Operating Income margin in the U.S.

was 33.2% compared to 28.5% in 2020 and 33.7% in 2019.

was 31.2% compared to 33.2% in 2021.

For clarity, the CSI IIA amortization expense hit the U.S.

Operating Income margin, and the Femcare IIA amortization expense hit the Femcare UK Operating Income margin.

Operating expenses include sales and marketing (S&M) expenses, product development (R&D) expenses and G&A expenses.

Consolidated operating expenses were $12,037 (24.5% of sales) in 2021, $11,840 (28.1% of sales) in 2020 and $11,834 (25.2% of sales) in 2019.

The following table provides a comparison of operating expense categories, as well as further segmentation of G&A expenses, for the last three years.

Operating expenses include sales and marketing (S&M) expenses, product development (R&D) expenses and general and administrative (G&A) expenses.

Consolidated WW operating expenses were $12,407 (23.7% of sales) in 2022 compared to $12,037 (24.5% of sales) in 2021.

The following table provides a comparison of operating expense categories, as well as further segmentation of G&A expenses:

G&A expenses:

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i) S&M expenses:

S&M expenses in 2021 were $1,414 (2.9% of sales) compared to $1,554 (3.7% of sales) in 2020 and $1,738 (3.7% of sales) in 2019.

UK sales salaries were $130 lower in 2021 than in 2020 due to a reduction in the UK sales force.

S&M expenses in 2022 were $1,507 (2.9% of sales) compared to $1,414 (2.9% of sales) in 2021.

The higher expenses were due to higher U.S.

distribution costs including fees paid to Med/Surg distributors.

OUS S&M expenses in 2022 compared to 2021 were diminished by a stronger USD, i.e.

constant currency 2022 S&M expenses would be $34 higher.

S&M expenses are the costs of communicating UTMD’s differences and product advantages, providing training and other customer service in support of the use of UTMD’s solutions, attending clinical meetings and medical trade shows, administering customer agreements, advertising, processing orders, shipping, and paying commissions to outside independent representatives.

In markets where UTMD sells directly to end-users, which in 2019-2021 included the U.S., Ireland, UK, Australia, France and Canada plus New Zealand in 2021, the largest components of S&M expenses were the cost of customer service required to timely process orders and the distribution costs associated with shipping products.

In markets where UTMD sells directly to end-users, which in 2021-2022 included the U.S., Ireland, UK, Australia, New Zealand, France and Canada, the largest components of S&M expenses were the cost of customer service required to timely process orders and the distribution costs associated with shipping products.

S&M expenses include all customer support costs including training.

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ii) R&D expenses:

R&D expenses in 2021 were $526 (1.1% of sales) compared to $486 (1.2% of sales) in 2020 and $483 (1.0% of sales) in 2019.

R&D expenses in 2022 were $493 (0.9% of sales) compared to $526 (1.1% of sales) in 2021.

R&D expenses include the costs of investigating clinical needs, developing innovative concepts, testing concepts for viability, validating methods of manufacture, completing any necessary premarketing clinical trials, regulatory documentation and other activities required for design control, responding to customer requests for product enhancements, and assisting manufacturing engineering on an ongoing basis in developing new processes or improving existing processes.

Although no new UTMD devices were launched in 2021, UTMD continued to customize configurations of its existing devices based on specific clinical requests and R&D played a significant role in manufacturing process improvements that were needed to support fast growing OEM product sales, in addition to continuing work on new product projects.

Product development (R&D) expenses declined as a result of reassigning engineers to help with manufacturing improvements and quality assurance in a challenging year.

R&D also played a significant role in manufacturing process improvements that were needed to support fast-growing OEM product demand.

Other than OEM products, no new UTMD devices were launched in 2022.

UTMD does not pre-announce new devices that are being developed.

iii) G&A expenses:

G&A expenses in 2021 were $10,096 (20.6% of sales) compared to $9,800 (23.2% of sales) in 2020 and $9,613 (20.5% of sales) in 2019.

G&A expenses in 2022 were $10,407 (19.9% of sales) compared to $10,096 (20.6% of sales) in 2021.

G&A expenses include the “front office” functional costs of executive management and outside directors, finance and accounting, corporate information systems, human resources, stockholder relations, corporate risk management, corporate governance, protection of intellectual property, amortization of identifiable intangibles and legal costs.

The table above helps identify certain specific categories of G&A expenses which might be of interest to stockholders.

As indicated in the table above, amortization of the Femcare IIA acquired in 2011 is part of G&A expenses.

The IIA GBP amortization expense in 2021 was £1,590 compared to £1,595 in 2020, practically the same.

However, because of a stronger GBP for the year as a whole, the USD 2021 IIA amortization expense was $140 higher than in 2020.

But 16.3% higher consolidated sales allowed better absorption of the resulting 6.8% higher USD Femcare IIA expense, i.e.

Femcare IIA amortization expense was 4.5% of sales in 2021 compared to 4.9% of 2020 sales.

The G&A noncash amortization expense of Femcare IIA was 4.3% of 2019 total consolidated sales.

The Femcare IIA amortization expense will continue until March 2026 (or until the value of any remaining IIA becomes impaired).

UTMD estimates that the Femcare IIA amortization expense in 2022 may be $25 lower due to an average stronger USD in 2022 compared to 2021.

The increase in G&A expenses was essentially due to $648 higher U.S.

litigation costs, offset by $351 reduction of OUS foreign currency expenses due to a stronger USD.

An FX rate change favorable USD impact of $223 (out of the $351 total) was from the amortization of Femcare acquisition IIA, which was £1,589 in 2022 compared to £1,590 in 2021.

As stockholders likely remember, the non-cash IIA amortization expense related to the Filshie Clip System includes IIA from both the 2011 acquisition of Femcare Group Ltd and the 2019 purchase of the CSI exclusive U.S.

distribution rights for the Filshie Clip System.

The combined IIA amortization expense in 2022 was 12.2% of total WW consolidated sales ($6,386) compared to 13.5% in 2021 ($6,610).

The decline in percent of sales was due both to higher sales and to a stronger USD converting the GBP IIA amortization expense, which was about the same in GBP as in the prior year.

The Femcare IIA amortization expense will continue at the same £397 per calendar quarter rate ending in 1Q 2026 (or until the value of any remaining IIA becomes impaired), subject to changes in the FX rate when converted to USD.

The early 2019 purchase of CSI exclusive Filshie Clip System U.S.

distribution rights also represents an IIA which is being amortized on a straight line basis over the remaining life of the Femcare distribution agreement with CSI which will be through 3Q 2023 (unless it becomes impaired before that, which is unlikely).

This CSI IIA amortization expense is included in U.S.

G&A expenses.

In 2021 and 2020, the CSI IIA amortization expense was the same at $4,421.

But again, due to the 16.3% higher consolidated sales, the CSI IIA amortization expense represented only 9.0% of sales compared to 10.5% of sales in 2020.

The CSI IIA amortization expense in 2019, which was a partial year due to the timing of the acquisition, was $4,053 (8.6% of 2019 annual sales).

In 2022, the constant $4,421 CSI IIA amortization expense will lower as a percentage of sales if further diluted by projected higher sales.

It seems worth noting that the combined Filshie Clip System and Femcare non-cash IIA amortization expenses represented more than half of all of UTMD’s total consolidated operating expenses during the three years of 2019-2021;

54.9% in 2021, 54.6% in 2020 and 51.5% in 2019.

distribution rights is being amortized at $1,105 per calendar quarter over the remaining life of the Femcare distribution agreement with CSI, which will end in 4Q 2023..

Excluding the non-cash Femcare and CSI IIA amortization expenses, UTMD consolidated operating expenses were $6,021 (11.5% of sales) in 2022 compared to $5,427 (11.1% of sales) in 2021.

The difference was due to litigation expenses.

Maintaining a consistent GPM and tightly controlling operating expenses remains the key to UTMD’s excellent profitability and Return on Stockholder Equity (ROE).

d) Non-operating income/Non-operating expense, and Income Before Taxes (EBT) .

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Also, the period-to-period remeasured value of EUR cash balances held in the UK, and GBP balances held in Ireland, generates a gain or loss which is booked at reporting period end as non-operating income or expense, as applicable.

Net non-operating income (combination of non-operating income and non-operating expense) was $181 in 2021, $132 in 2020 and $252 in 2019.

The higher non-operating income in 2021 compared to 2020 was due to $142 higher rent income in Ireland from renting unneeded warehouse space.

Net non-operating income (combination of non-operating income and non-operating expense) was $869 in 2022 and $181 in 2021.

The higher non-operating income in 2022 compared to 2021 was due to higher interest income on UTMD’s cash balances.

A description of components of UTMD’s non-operating income or expense follows:

1) Interest Expense.

There was no interest expense in 2019-2021.

There was no interest expense in 2022 or 2021.

Absent an acquisition or large repurchase of shares that requires new borrowing, UTMD does not expect any interest expense in 2023.

2) Investment of excess cash.

Consolidated investment income (including gains and losses on sales of investments) was $46 in 2021, $64 in 2020 and $255 in 2019.

Interest rates in 2021 remained practically zero, and UTMD had to pay negative interest on EUR bank balances in Ireland.

UTMD is expecting interest rates to improve marginally in 2022.

Consolidated investment income (including gains and losses on sales of investments) was $661 in 2022 compared to $46 in 2021.

Average cash balances were almost $12 million higher in 2022 than in 2021.

In addition, in contrast to 2022, interest rates in 2021 were practically zero, and UTMD had to pay negative interest on EUR bank balances in Ireland.

UTMD is projecting higher interest rates to continue in 2023, leading to another substantial increase in non-operating income.

3) Royalties.

Royalties in 2021 were $15 compared to $20 in 2020, and $5 in 2019.

Royalties in 2022 were $20 compared to $15 in 2021.

Presently, there is only one arrangement which began in 2020 under which UTMD is receiving royalties on its technology.

4) Gains/ losses from remeasured currency in bank accounts.

UTMD recognized a $23 loss in 2021 compared to a $45 gain in 2020 and a $76 loss in 2019 from gains or losses on remeasured foreign currency bank balances.

UTMD recognized a $20 loss in 2022 compared to a $23 loss in 2021 from losses on remeasured foreign currency bank balances.

EUR currency cash balances in the UK, and GBP currency cash bank balances in Ireland, are subject to remeasured currency translation gains/ losses as a result of period to period changes in FX rates.

5) Other non-operating income or expense.

Income received from renting unused warehouse space in Ireland and parking lot space in Utah for a cell phone tower, offset by bank fees, and other miscellaneous non-operating expenses resulted in net non-operating income of $124 in 2021 compared to a net non-operating expense of $10 in 2020 and $85 in 2019.

Income received from renting unused warehouse space in Ireland and parking lot space in Utah for a cell phone tower, offset by bank fees, and other miscellaneous non-operating expenses resulted in net non-operating income of $196 in 2022 compared to a net non-operating income of $124 in 2021.

EBT results from adding net non-operating income or subtracting net non-operating expense from Operating Income.

Consolidated EBT was $19,061 (38.9% of sales) in 2021 compared to $13,840 (32.8% of sales) in 2020 and $17,884 (38.1% of sales) in 2019.

Consolidated EBT was $20,659 (39.5% of sales) in 2022 compared to $19,061 (38.9% of sales) in 2021.

In other words, despite the inflationary cost pressures diluting UTMD’s GPM and much higher litigation expenses, the Company expanded its EBT Margin (EBT as a percentage of sales) on higher sales, yielding an 8.4% increase in EBT in a tough year.

In summary, UTMD’s 2022 EBT substantially exceeded management’s beginning of year projections due to achieving less dilution in profit margins and greater non-operating income than was expected.

The 2022 EBT of UTMD Ltd.

(Ireland) was €6,277 (56.6% of sales) compared to €3,728 (48.3% of sales) in 2020 and €2,577 (38.2% of sales) in 2019.

Femcare Ltd’s (UK) 2021 EBT was (£1,003) compared to (£593) in 2020 and £1,566 (28.3% of sales) in 2019.

(Ireland) was €8,013 (56.3% of sales) compared to €6,277 (56.6% of sales) in 2021.

Femcare Ltd’s (UK) 2022 EBT was (£574) compared to (£1,003) in 2021.

Femcare Ltd, as the legal manufacturer of the Filshie Clip System, supports worldwide regulatory requirements in addition to absorbing the IIA amortization expense of the 2011 Femcare Group acquisition.

Femcare AUS’s 2021 EBT was AUD 1,042 (45.9% of sales) compared to AUD 857 (41.8% of sales) in 2020 and AUD 952 (38.8% of sales) in 2019.

Femcare Canada’s 2021 EBT was CAD 592 (34.2% of sales) compared to CAD 798 (40.5% of sales) in 2020 and CAD 1,280 (41.8% of sales) in 2019.

As a side note for clarity of financial results, UTMD’s EBT, as well as all other income statement measures above the EBT line in the Income Statements, were unaffected by 2019-2021 adjustments to income tax provisions as a result of income tax rate changes in the UK enacted in 2Q 2020 and 2Q 2021, which increased UTMD’s long term deferred tax liability, and the 2019 corrected estimate of the repatriation tax and associated GILTI tax and FDII tax credit, all of which resulted from the U.S.

TCJA enacted in December 2017.

Femcare AUS’s 2022 EBT was AUD 573 (31.3% of sales) compared to AUD 1,042 (45.9% of sales) in 2021.

Femcare Canada’s 2022 EBT was CAD 622 (36.9% of sales) compared to CAD 592 (34.2% of sales) in 2021.

As a side note for clarity of comparison of financial results, UTMD’s 2021 EBT, as well as all other income statement measures above the EBT line in the 2021 Income Statement, were unaffected by the 2Q 2021 income tax provision adjustment as a result of a future income tax rate change in the UK, which increased UTMD’s long term deferred tax liability and reduced Net Income in 2021.

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.

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UTMD non-US GAAP EBITDA:

In summary, UTMD’s 2021 non-US GAAP EBITDA increased 25.6% compared to 2020 and 6.5% compared to 2019, when 2021 sales were 16.3% higher than in 2020 and 4.6% higher than in 2019.

This metric is expected to also grow faster than the projected increase in sales in 2022.

In summary, UTMD’s 2022 non-US GAAP EBITDA increased 5.1% compared to 2021.

e) Net Income, Earnings Per Share (EPS) and Return on Equity (ROE).

i) Net Income

Net Income results after subtracting a provision for estimated income taxes from EBT.

UTMD’s US GAAP Net Income in 2021 was $14,788 (30.1% of sales) compared to $10,798 (25.6% of sales) in 2020 and $14,727 (31.4% of sales) in 2019.

Because of changes in UTMD’s repatriation tax estimate in the year 2019 due to the TCJA enacted in December 2017, as well as UK income tax changes enacted in 2020 and 2021, management does not believe either that the tax provision adjustments have a direct relationship to sales in the same periods, or that the year-to-year changes in US GAAP Net Income is an accurate measure of UTMD’s bottom-line financial performance in the applicable time periods.

Ignoring the income tax adjustments, 2021 non-US GAAP Net Income was $15,178 (30.9% of sales) compared to $11,023 (26.1% of sales) in 2020 and $14,145 (30.2% of sales) in 2019.

Please see the table below which presents Net Income both according to US GAAP and also prior to recognition of the various tax estimate adjustments.

The US GAAP consolidated income tax provision rate for 2021 was 22.4% compared to 22.0% in 2020 and 17.7% of EBT in 2019.

The estimated tax provision adjustments in 2019 reduced the 2019 average rate, whereas the adjustments in 2020 and 2021 increased the average rates.

The non-US GAAP consolidated combined income tax provision rate for both 2021 and 2020 was 20.4% compared to 20.9% of EBT in 2019.

UTMD’s US GAAP Net Income in 2022 was $16,473 (31.5% of sales) compared to $14,788 (30.1% of sales) in 2021.

Because of a future UK income tax rate change enacted in 2021 which reduced 2021 Net Income and EPS results per US GAAP, management does not believe the year-to-year comparisons in US GAAP Net Income and EPS are an accurate measure of UTMD’s bottom-line 2022 financial performance comparison with 2021.

Ignoring the income tax adjustment, 2021 non-US GAAP Net Income was $15,178 (30.9% of sales).

Please see the table below which presents Net Income both according to US GAAP and also prior to recognition of the 2021 income tax provision adjustment.

The US GAAP consolidated income tax provision rate for 2022 was 20.3% compared to 22.4% in 2021.

The estimated tax provision adjustment in 2021 increased the average rate.

The non-US GAAP consolidated combined income tax provision rate for 2021 was 20.4%, about the same as in 2022.

For clarity, the UK income tax rate change in 2021 from 19% to 25% beginning in April 2023 added $390 to UTMD’s 2021 income tax provision, representing the increased tax which will be due over the remaining life of amortization of Femcare’s IIA, which is not a tax-deductible expense in the UK.

Similarly, the UK income tax rate change in 2020 from 17% to 19% added $225 to UTMD’s 2020 income tax provision, representing the increased tax which will be due over the remaining life of amortization of Femcare’s IIA, which is not a tax deductible expense in the UK.

The income tax adjustment in 2019 subtracted $582 from UTMD’s 2019 income tax provision due to UTMD’s initial estimates of taxes due under the TCJA being too high.

More normally and in general, year-to-year fluctuations in the combined average tax provision rate will result from variation in EBT contribution from subsidiaries in jurisdictions with different corporate income tax rates.

In general, year-to-year fluctuations in the combined average income tax provision rate will result from variation in EBT contribution from subsidiaries in jurisdictions with different corporate income tax rates.

Taxes in foreign subsidiaries are based on taxable EBT in those sovereignties, which can be different from the contribution to consolidated EBT per US GAAP.

UTMD expects, barring any new tax law changes which are currently unknown, that its combined income tax rate for 2022 will be within the (non-GAAP) 20.4%-20.9% range of the three years of 2019-2021.

The UK had an income tax rate of 19% for all three years 2019-2021.

UTMD expects, barring any new tax law changes which are currently unknown, that its combined income tax rate for 2023 will be within the 20.3%-20.5% range.

The UK had a corporate income tax rate of 19% for both 2022 and 2021.

The UK also allowed a tax deduction for sales of UK patented products which varied from year-to-year based on somewhat complicated rules which are sorted out for UTMD by independent UK tax specialists.

The income tax rate for AUS was 30% for all three years.

The income tax rate for Canada was about 26% for the three years.

The income tax rate for AUS was 30% for both 2022 and 2021.

The income tax rate for Canada was about 27% for both years.

Profits of the Ireland subsidiary were taxed at a 12.5% rate on exported manufactured products, and a 25% rate on rental and other types of income including income from sales of medical devices in Ireland domestically.

As UTMD stockholders likely remember, in the U.S.

the Federal income tax rate was changed after 2017 to 21% from 34% prior to the TCJA.

As UTMD stockholders likely remember, in the U.S., the Federal income tax rate was changed after 2017 to 21% from 34% prior to the 2017 Tax Cut and Jobs Act (TCJA).

Federal taxes are not 21% of U.S.

EBT, however, as income taxes paid to the State are a deductible expense for Federal tax purposes, other expenses are not deductible and there remains an R&D tax credit along with other credits, not to mention a GILTI tax related to foreign income and FDII tax credit related to profits on export sales.

The Utah state income tax rate declined to 4.95% from 5% prior to the TCJA, and the State enacted income apportionment rules that provide for additional tax relief.

Earnings Per Share (EPS)

The Utah state income tax rate declined to 4.95% from 5% prior to the TCJA, and the State of Utah enacted income apportionment rules that provide for additional tax relief.

ii) Earnings Per Share (EPS)

EPS are Net Income divided by the number of shares of stock outstanding (diluted to take into consideration stock option awards which are “in the money,” i.e., have exercise prices below the applicable period’s weighted average market value).

Diluted EPS in 2021 per US GAAP were $4.041 ($4.147 prior to the UK deferred tax liability adjustment) compared to $2.941 ($3.002 prior to the UK deferred tax liability adjustment) in 2020 and $3.939 ($3.784 prior to the Utah state TCJA tax correction) in 2019.

The 2021 non-US GAAP EPS result exceeded management’s projection at the beginning of the year.

The 2021-ending weighted average number of diluted common shares (the number used to calculate diluted EPS) was 3,660 (in thousands) compared to 3,672 in 2020 and 3,739 in 2019.

Dilution for “in the money” unexercised options for the year 2021 was 13 (in thousands) shares compared to 14 shares in 2020 and 18 shares in 2019.

US GAAP diluted EPS in year 2022 were $4.522 compared to $4.041 in 2021, an 11.9% increase.

Excluding the income tax provision increase due to the DTL adjustment in 2021, non-US GAAP diluted EPS in 2021 were $4.147.

The 2022 EPS increase over the non-US GAAP 2021 EPS was 9.0%, which is more indicative of normal operating results.

The increase in EPS was higher than the increase in Operating Income as a result of the 2022 improvement in net non-operating income from higher interest on higher cash balances, and a stock buy-back in 2Q 2022.

Diluted shares were 3,643,256 for the year 2022 compared to 3,659,814 in 2021.

Dilution for “in the money” unexercised options for the year 2022 was 5,934 shares compared to 12,606 shares in 2021.

Actual outstanding common shares as of December 31, 2022 were 3,627,767.

UTMD management believes the presentation of Net Income and EPS results excluding the tax liability estimate adjustments in 2021, 2020 and 2019 provides meaningful supplemental information to both management and investors that is more clearly indicative of UTMD’s bottom line results for comparison purposes.

The 2022 EPS exceeded management’s projection at the beginning of the year.

UTMD management believes the presentation of Net Income and EPS results excluding the tax liability estimate adjustment in 2021 provides meaningful supplemental information to both management and investors that is more clearly indicative of UTMD’s bottom line results for comparison purposes.

Net Income Margin

Non-US GAAP (excluding 2020 and 2021 UK DTL changes and TCJA tax adjustments in 2019) :

Non-US GAAP (excluding the 2021 UK DTL change):

Net Income Margin

The tax provision adjustments only affected UTMD’s income tax provision, Net Income and EPS, not consolidated revenues (sales), GP, Operating Income or EBT.

The non-US GAAP financial measures also facilitate management’s internal comparisons for purposes of planning future performance.

The 2021 tax provision adjustment only affected UTMD’s income tax provision, Net Income and EPS, not consolidated revenues (sales), GP, Operating Income or EBT.

The non-US GAAP financial measures indicate that the 2022 growth in Net Income and EPS compared to 2021 was more modest, and facilitate management’s internal comparisons for purposes of planning future performance.

The non-US GAAP financial measures disclosed by UTMD should not be considered a substitute for or superior to financial measures calculated in accordance with US GAAP, and the financial results calculated in accordance with US GAAP and reconciliations to those financial statements should be carefully evaluated.

In short, UTMD realized a substantial recovery in 2021 revenues from 2020, and profitability returned to pre-pandemic levels.

Looking forward to 2022, there remains a significant lack of predictability of demand for UTMD’s medical devices due to governments’ now entrenched desire to control people’s health care as a result of the pandemic.

Nevertheless, management believes that 2022 sales are likely to be higher than in 2021 due to UTMD having to raise prices of its devices, offset by a slower recovery OUS combined with a stronger USD reducing foreign currency sales.

Because the high rate of inflation in costs and the difficulty in hiring people which resulted from uncontrolled government spending continues to grow at a rate that is likely to exceed the rate of growth in sales, the Company also expects that the rate of growth in Gross Profit in 2021 will be lower than the growth in sales.

A lower GPM will be partially offset by better absorption of UTMD’s high fixed IIA amortization expenses.

For the sake of specificity and as an example, UTMD estimates that a 5% increase in sales in 2022 will yield a 1% increase in EBT compared to 2021 results.

Looking forward to 2023, UTMD believes that sales to its medical device end-users will remain stable.

This might be partly offset, however, if the USD on the average is stronger, reducing the USD value of approximately 25% of UTMD’s revenues invoiced in foreign currencies.

In recent years, UTMD’s sales to its largest OEM customer have grown rapidly, culminating in 22% of UTMD’s consolidated WW revenues in 2022.

Projections of demand from this customer have not been reliable in the past, and its signals for 2023 are currently mixed despite year-to-date orders which are higher.

Given the abatement of vaccine production for COVID-19, UTMD anticipates a near term lessening of pharmaceutical control device demand, perhaps reducing UTMD’s revenues in 2023 relative to 2022 from this customer.

Therefore, management believes it is reasonable to project 2023 revenues in the range of $50 to $52 million compared to $52.3 million in 2022, without consideration for acquiring another source of revenues not currently in UTMD’s portfolio.

The Company also believes it can maintain its Gross Profit Margin and Operating Income Margin in 2023 with slightly lower sales, excluding unusual litigation costs, despite economic headwinds associated with a high cost inflation environment.

In the absence of a significant use of cash to increase long term stockholder value, the incremental litigation costs should be more than covered by UTMD’s increase in interest income on its cash reserves.

The endpoint of this 2023 projection is Net Income and EPS about the same as in 2022.

Maintaining a high ROE remains a key management objective for UTMD in order to grow without diluting stockholder interest.

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Although UTMD’s high Net Income margin is the primary factor that continues to drive its ROE, cash dividends to stockholders and repurchase of shares help in lowering average Stockholders’ Equity, reducing the denominator in calculating ROE.

The income tax estimate adjustments in all three years had an impact on the overall ROE ratios using US GAAP Net Income.

UTMD’s 2021 ROE before stockholder dividends (with US GAAP Net Income) was 14.1%.

In comparison, 2020 ROE was 10.6% and 2019 ROE was 15.5%.

Before dividends, UTMD’s 2021 ROE (using non-US GAAP Net Income) was 14.5% compared to 10.8% in 2020 and 14.9% in 2019, excluding the effect of the tax adjustments on Net Income.

The higher 2021 ROE compared to 2020 was the result of 37.7% higher non-US GAAP Net Income with 3.0% higher average Stockholders’ Equity.

Average Stockholders’ Equity was $104,980 in 2021 compared to $101,957 in 2020 and $95,042 in 2019.

UTMD’s Stockholders’ Equity has more than doubled over the last ten years despite being reduced by $46 million in dividends and $14 million in share repurchases over that same period of time.

UTMD’s 2022 ROE before stockholder dividends was 14.9%.

In comparison, 2021 ROE was 14.1%.

The higher 2022 ROE compared to 2021 was the result of 11.4% higher US GAAP Net Income coupled with 5.4% higher average Stockholders’ Equity.

Average Stockholders’ Equity was $110,696 in 2022 compared to $104,980 in 2021.

UTMD’s Stockholders’ Equity has more than doubled over the last ten years to $114 million at the end of 2022, despite being reduced by $46 million in dividends plus $16 million in share repurchases over that same period of time.

Maintaining a high ROE with the dilutive effect of rapidly growing Average Stockholders’ Equity (despite reductions from dividends and stock repurchases), while maintaining excellent Net Income results, suggests an excellent increase in stockholder value.

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Liquidity and Capital Resources

Net cash provided by operating activities totaled $21,203 compared to $20,137 in 2020 and $17,056 in 2019.

Net Profit at $3,990 higher in 2021 compared to 2020 allowed net cash provided by operating activities in 2020, including adjustments for depreciation and other non-cash operating expenses, along with changes in working capital and the tax benefit attributable to exercise of employee incentive stock options, to be $1,066 higher than in 2020.

Total cash provided by operating activities was not in the magnitude of increased Net Profit as a result of changes in 2021 cash required for operating activities compared to 2020 changes (second order derivative), which were a function of the higher 2021 business activity related to recovering from restrictions on nonessential medical procedures during the pandemic, i.e.

1) a $1,705 higher use of cash as a result of increasing trade accounts receivable (A/R) $1,088 instead of the $617 decrease in 2020, and 2) a $1,408 higher use of cash as a result of increasing inventories $485 instead of the $923 decrease in 2020.

Additional changes that consumed more cash in 2021 than in 2020 included a $66 greater reduction in deferred income taxes, a $42 reduction in interest and other receivables instead of a $45 increase in 2020 and an $81 reduction in prepaid expenses and other current assets instead of a $108 increase in 2020.

In addition to higher Net Profit, greater cash was provided in 2021 compared to 2020 from $129 higher non-cash amortization expense, a $32 higher tax benefit attributable to exercise of employee stock options and a $106 higher increase in accrued expenses.

In investing activities, during 2021 UTMD used $552 in capital expenditures to purchase new molds and manufacturing equipment for new capabilities as well as to maintain, improve or expand existing operating capabilities, compared to investing $860 in 2020.

In 2021 UTMD received $560 and issued 11,702 shares of stock upon the exercise of employee stock options.

Net cash provided by operating activities in 2022 totaled $21,147 compared to $21,203 in 2021.

Net Income at $1,685 higher in 2022 compared to 2021 allowed net cash provided by operating activities in 2022, including adjustments for depreciation and other non-cash operating expenses, along with changes in working capital and the tax benefit attributable to exercise of employee incentive stock options, to be about the same as in 2021.

The increase in Net Income funded operating activities particularly including a $1,868 higher increase in inventories than the increase in 2021 (second order derivative).

The additional inventory increase was a hedge against supply chain disruption emanating from the COVID-19 pandemic.

Other changes were a function of normal business activity, e.g.

1) a $577 lower use of cash as a result of increasing trade accounts receivable (A/R) $511 instead of the $1,088 increase in 2021, 2) a $486 lower use of cash as a result of increasing accounts payable $463 instead of the $23 decrease in 2021, 3) a $461 higher use of cash from increasing accrued expenses only $252 compared to the $713 increase in 2021, 4) a $308 higher use of cash from reducing deferred income taxes $401 compared to the $92 reduction in 2021, and 5) $251 less cash provided from less depreciation and amortization in 2022 compared to 2021.

Also, the income tax benefit attributable to exercise of employee stock options in 2022 was $34 lower than in 2021 because 10,210 fewer shares were exercised.

In investing activities, during 2022 UTMD used $809 in capital expenditures to purchase new molds and manufacturing equipment and fixtures for expanded capabilities as well as to maintain and improve existing operating capabilities, compared to investing $552 in 2021.

Capital expenditures exceeded depreciation by $197.

UTMD also expensed $40 more in 2022 compared to 2021 for tools and equipment, including repairs.

In 2022, UTMD received $174 and issued 3,135 shares of stock upon the exercise of employee and director stock options.

Employees exercised a total of 3,501 option shares in 2022, with 366 shares immediately being retired as a result of optionees trading the shares in payment of the exercise price of the options.

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The Company received a $6 tax benefit from option exercises in 2022.

UTMD did not repurchase shares of its stock in the open market during 2021.

In comparison, in 2020 UTMD received $358 and issued 8,278 shares of stock upon the exercise of employee and director stock options.

Option exercises in 2020 were at an average price of $43.26 per share.

The Company received a $7 tax benefit from option exercises in 2020.

UTMD repurchased 30,105 shares of its stock in the open market during 2022 at an average cost of $82.88 per share.

In further comparison, in 2019 UTMD received $283 and issued 7,042 shares of stock upon the exercise of employee and director stock options.

Employees and directors exercised a total of 7,110 option shares in 2019, with 68 shares immediately being retired as a result of optionees trading the shares in payment of the exercise price of the options.

In comparison, in 2021 UTMD received $560 and issued 11,702 shares of stock upon the exercise of employee stock options.

Employees exercised a total of 13,711 option shares in 2021, with 2,009 shares immediately being retired as a result of optionees trading the shares in payment of the exercise price of the options.

Option exercises in 2021 were at an average price of $57.40 per share.

The Company received a $39 tax benefit from option exercises in 2021.

UTMD repurchased 5,000 shares of its stock in the open market during 2019 at an average cost of $79.52 per share.

UTMD did not borrow in any of the three years 2019-2021.

Cash dividends paid to stockholders were $11,465 in 2021 compared to $4,116 in 2020 and $4,096 in 2019.

UTMD did not repurchase shares of its stock in the open market during 2021.

UTMD did not borrow in the years 2021 and 2022.

Cash dividends paid to stockholders were $3,162 in 2022 compared to $11,465 in 2021.

Management believes that future income from operations and effective management of working capital will continue to provide the liquidity needed to finance internal growth plans.

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UTMD remains relatively small compared to many other companies, but its employees are experienced and remain diligent in their work.

UTMD’s passion is in providing differentiated clinical solutions that will help improve the effectiveness of medical procedures and reduce health risks, particularly for women and their babies.

The safety, reliability and performance of UTMD’s medical devices are high and represent significant clinical benefits while providing minimum total cost of care.

UTMD’s passion is in providing differentiated clinical solutions that will help improve the outcomes of medical procedures and reduce health risks, particularly for women and their babies.

The safety, reliability and performance of UTMD’s medical devices are consistently high and represent significant clinical benefits while providing minimum total cost of care.

UTMD will continue to leverage its reputation as a device innovator and reliable manufacturer which will responsively take on challenges to work with clinicians who use its specialty devices.

In doing so, UTMD will continue to differentiate itself, especially from commodity-oriented competitors.

In doing so, UTMD will continue to differentiate itself, especially from its commodity-oriented competitors.

In 2023, UTMD again plans to

1) leverage distribution and manufacturing synergies by further integrating capabilities and resources in its multinational operations;

2) expand manufacturing capacity at a time when resources are particularly scarce;

2) expand manufacturing capacity at a time when resources are scarce;

3) focus on effectively differentiating the benefits of the Filshie Clip System in the U.S.;

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

4) introduce additional products helpful to clinicians through product development;

5) continue to achieve excellent overall financial operating performance;

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The Company has a fundamental focus to do an excellent job in meeting clinicians’ and patients’ needs, while providing stockholders with excellent returns.

In the combined form of cash dividends and share repurchases, UTMD “returned” $11,465 (78% of Net Income) to stockholders in 2021 compared to $11,092 (103% of Net Income) in 2020 and $4,494 (31% of Net Income in 2019).

In 2021, the value of UTMD’s stock improved 19%, ending the year at $100.00/ share, while $3.14 in cash dividends/ share were paid.

The DJIA, S&P 500 and NASDAQ (where UTMD is traded) indices were up 19%, 27% and 27% respectively in 2021.

In comparison, in 2020, the value of UTMD’s stock declined 22%, ending the year at $84.30/ share, while $1.12 in cash dividends/ share were paid.

In the combined form of cash dividends and share repurchases, UTMD “returned” $5,658 (34% of Net Income) in 2022 compared to $11,465 (78% of Net Income) in 2021 to stockholders.

In 2022, the value of UTMD’s stock increased , albeit less than 1%, ending the year at $100.53/ share, while $0.87 in cash dividends/ share were paid to stockholders.

The DJIA, S&P 500 and NASDAQ (where UTMD is traded) indices were all lower in 2022, respectively by 9%, 19% and 33%.

In comparison, in 2021, the value of UTMD’s stock improved 19%, ending the year at $100.00/ share, while $3.14 in cash dividends/ share were paid.

The DJIA, S&P 500 and NASDAQ (where UTMD is traded) indices were up 19%, 27% and 27% respectively in 2021.

In further comparison, in 2019 the value of UTMD’s stock increased 30%, ending the year at $107.90/ share, while $1.10 in cash dividends/ share were paid.

The DJIA, S&P 500 and NASDAQ indices were up 22%, 29% and 35% respectively in 2019.

The average compounded appreciation in UTMD stock value for the last 23 years was 12.6% per year, substantially outpacing all of the major indices.

The average annually compounded appreciation in UTMD stock value for the last 24 years was 12.0% per year, substantially outpacing all of the major indices.

Adding dividends, UTMD stockholder value increased at an annually compounded rate of 12.9% over the last 24 years since 1998.

26 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis