UTAH MEDICAL PRODUCTS INC 10-Q

Item 1. Financial Statements UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS AS OF JUNE 30, 2023 AND DECEMBER 31, 2022 (in thousands) (unaudited) (audited) JUNE 30, 2023 DECEMBER 31, 2022 ASSETS Current assets: Cash & investments $ 84,619 $ 75,052 Accounts & other receivables, net 3,604 5,538 Inventories 10,117 8,814 Other current assets 467 515 Total current assets 98,807 89,919 Property and equipment, net 10,541 10,224 Goodwill 13,676 13,354 Other intangible assets 54,250 52,755 Other intangible assets - accumulated amortization ( 46,799 ) ( 42,378 ) Other intangible assets, net 7,451 10,377 Total assets $ 130,475 $ 123,874 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,336 $ 1,218 Accrued expenses 3,808 4,742 Total current liabilities 5,144 5,960 Deferred tax liability – Femcare IIA 1,370 1,514 Other long term liabilities 1,257 1,256 Operating lease liability 315 341 Deferred income taxes 628 549 Total liabilities 8,714 9,620 Stockholders' equity: Common stock - $ 0.01 par value; authorized - 50,000 shares; issued and outstanding - June 30, 2023, 3,629 shares and December 31, 2022, 3,628 shares 36 36 Accumulated other comprehensive loss ( 10,986 ) ( 12,039 ) Additional paid-in capital 432 251 Retained earnings 132,279 126,006 Total stockholders' equity 121,761 114,254 Total liabilities and stockholders' equity $ 130,475 $ 123,874 see notes to consolidated condensed financial statements 1 Table of Contents UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND JUNE 30, 2022 (in thousands, except per share amounts - unaudited) Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 Sales, net $ 12,866 $ 13,428 $ 25,386 $ 25,752 Cost of goods sold 5,127 5,277 9,805 10,069 Gross profit 7,739 8,151 15,581 15,683 Operating expense Selling, general and administrative 3,181 2,959 6,440 5,846 Research & development 133 135 277 258 Total operating expenses 3,314 3,094 6,717 6,104 Operating income 4,425 5,057 8,864 9,579 Other income 747 142 1,428 150 Income before provision for income taxes 5,172 5,199 10,292 9,729 Provision for income taxes 972 1,096 1,878 2,091 Net income $ 4,200 $ 4,103 $ 8,414 $ 7,638 Earnings per common share (basic) $ 1.16 $ 1.13 $ 2.32 $ 2.09 Earnings per common share (diluted) $ 1.15 $ 1.12 $ 2.31 $ 2.09 Shares outstanding - basic 3,628 3,643 3,628 3,649 Shares outstanding - diluted 3,639 3,650 3,638 3,658 Other comprehensive income (loss): Foreign currency translation net of taxes of $ 0 in all periods $ 504 $ ( 2,298 ) $ 1,053 $ ( 2,804 ) Total comprehensive income $ 4,704 $ 1,805 $ 9,467 $ 4,834 see notes to consolidated condensed financial statements 2 Table of Contents UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND JUNE 30, 2022 (in thousands - unaudited) Six Months Ended June 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,414 $ 7,638 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 310 302 Amortization 3,207 3,257 Provision for (recovery of) losses on accounts receivable ( 26 ) 26 Amortization of Right-of-Use Assets 26 26 Deferred income taxes ( 137 ) ( 286 ) Stock-based compensation expense 100 83 Tax benefit attributable to exercise of stock options 9 - Changes in operating assets and liabilities: Accounts receivable and other receivables 2,044 102 Inventories ( 1,245 ) ( 930 ) Prepaid expenses and other current assets 3 ( 47 ) Accounts payable 114 64 Accrued expenses ( 991 ) ( 357 ) Total adjustments 3,414 2,240 Net cash provided by operating activities 11,828 9,878 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for: Property and equipment ( 363 ) ( 450 ) Intangible assets - ( 9 ) Net cash used in investing activities ( 363 ) ( 459 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock - options 81 23 Common stock purchased and retired - ( 2,495 ) Payment of dividends ( 2,140 ) ( 1,060 ) Net cash used in financing activities ( 2,059 ) ( 3,532 ) Effect of exchange rate changes on cash 161 ( 637 ) Net increase in cash and cash equivalents 9,567 5,250 Cash at beginning of period 75,052 60,974 Cash at end of period $ 84,619 $ 66,224 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for income taxes $ 2,546 $ 2,467 Cash paid during the period for interest - - see notes to consolidated condensed financial statements 3 Table of Contents UTAH MEDICAL PRODUCTS, INC. CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022 (In thousands - unaudited) Accumulated Additional Other Total Common Stock Paid-in Comprehensive Retained Stockholders' Shares Amount Capital Income (Loss) Earnings Equity Balance at December 31, 2022 3,628 $ 36 $ 251 $ ( 12,039 ) $ 126,006 $ 114,254 Shares issued upon exercise of employee stock options for cash - - 21 - - 21 Stock option compensation expense - - 50 - - 50 Foreign currency translation adjustment - - - 549 - 549 Common stock dividends - - - - ( 1,070 ) ( 1,070 ) Net income - - - - 4,214 4,214 Balance at March 31, 2023 3,628 $ 36 $ 322 $ ( 11,491 ) $ 129,150 $ 118,018 Shares issued upon exercise of employee stock options for cash 1 - 60 - - 60 Stock option compensation expense - - 50 - - 50 Foreign currency translation adjustment - - - 504 - 504 Common stock dividends - - - - ( 1,071 ) ( 1,071 ) Net income - - - - 4,200 4,200 Balance at June 30, 2023 3,629 $ 36 $ 432 $ ( 10,986 ) $ 132,279 $ 121,761 Balance at December 31, 2021 3,655 $ 37 $ 841 $ ( 9,054 ) $ 115,314 $ 107,138 Shares issued upon exercise of employee stock options for cash - - 19 - - 19 Stock option compensation expense - - 43 - - 43 Foreign currency translation adjustment - - - ( 506 ) - ( 506 ) Common stock dividends - - - - ( 1,060 ) ( 1,060 ) Net income - - - - 3,534 3,534 Balance at March 31, 2022 3,655 $ 37 $ 903 $ ( 9,560 ) $ 117,789 $ 109,168 Shares issued upon exercise of employee stock options for cash - - 4 - - 4 Stock option compensation expense - - 40 - - 40 Common stock purchased and retired ( 30 ) - ( 947 ) - ( 1,548 ) ( 2,495 ) Foreign currency translation adjustment - - - ( 2,298 ) - ( 2,298 ) Common stock dividends - - - - ( 1,051 ) ( 1,051 ) Net income - - - - 4,103 4,103 Balance at June 30, 2022 3,625 $ 36 $ - $ ( 11,858 ) $ 119,293 $ 107,471 see notes to consolidated condensed financial statements 4 Table of Contents UTAH MEDICAL PRODUCTS, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) (1) The unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States. These statements should be read in conjunction with the financial statements and notes included in the Utah Medical Products, Inc. ("UTMD" or "the Company") annual report on Form 10-K for the year ended December 31, 2022. In the opinion of management, the accompanying financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company's financial position and results of operations. Currency amounts are in thousands except per-share amounts and where noted. (2) Recent Accounting Standards. The Company has determined that recently issued accounting standards will either have no material impact on its consolidated financial position or results of operations or cash flows, or will not apply to its operations. (3) Inventories at June 30, 2023 and December 31, 2022 consisted of the following: June 30, 2023 December 31, 2022 Finished goods $ 2,520 $ 1,896 Work-in-process 1,432 1,193 Raw materials 6,165 5,725 Total $ 10,117 $ 8,814 (4) Stock-Based Compensation. At June 30, 2023, the Company has stock-based employee compensation plans which authorize the grant of stock options to eligible employees and directors. The Company accounts for stock compensation under FASB Accounting Standards Codification (“ASC”) 718, Compensation - Stock Compensation . This statement requires the Company to recognize compensation cost based on the grant date fair value of options granted to employees and directors. In the quarters ended June 30, 2023 and 2022, the Company recognized $ 50 and $ 40 , respectively, in stock based compensation cost. In the six months ended June 30, 2023 and 2022, the Company recognized $ 100 and $ 83 , respectively, in stock based compensation cost. (5) Warranty Reserve. The Company’s published warranty is: “UTMD warrants its products to conform in all material respects to all published product specifications in effect on the date of shipment, and to be free from defects in material and workmanship for a period of thirty (30) days for supplies, or twenty-four (24) months for equipment, from date of shipment. During the warranty period UTMD shall, at its option, replace any products shown to UTMD's reasonable satisfaction to be defective at no expense to the Purchaser or refund the purchase price.” UTMD maintains a warranty reserve to provide for estimated costs which are likely to occur. The amount of this reserve is adjusted, as required, to reflect its actual experience. Based on its analysis of historical warranty claims and its estimate that existing warranty obligations were immaterial, no warranty reserve was made at December 31, 2022 or June 30, 2023. (6) Global 2Q 2023 revenues (USD) by product category: Domestic Outside US Total Obstetrics $ 854 $ 221 $ 1,075 Gynecology/Electrosurgery/Urology 2,685 3,232 5,917 Neonatal 1,144 252 1,396 Blood Pressure Monitoring and Accessories 2,334 2,144 4,478 Total $ 7,017 $ 5,849 $ 12,866 Global 1H 2023 revenues (USD) by product category: Domestic Outside US Total Obstetrics $ 1,659 $ 430 $ 2,090 Gynecology/Electrosurgery/Urology 5,206 6,304 11,510 Neonatal 2,529 630 3,158 Blood Pressure Monitoring and Accessories 4,808 3,820 8,628 Total $ 14,202 $ 11,184 $ 25,386 5 Table of Contents (7) Distribution Agreement Purchase. UTMD completed the purchase of exclusive U.S. distribution rights for the Filshie® Clip System from CooperSurgical, Inc. (CSI) on February 1, 2019. The $ 21,000 purchase price represented an identifiable intangible asset which is being straight-line amortized and recognized as part of G&A expenses over a remaining 4 -month life as of June 30, 2023 of the prior CSI distribution agreement with Femcare. (8) Earnings Per Share. Basic earnings per share is calculated by dividing net income attributable to the common stockholders of the company by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by assuming the exercise of stock options at the closing price of stock on June 30, 2023. The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share: (in thousands) Three months ended Six months ended June 30, June 30, 2023 2022 2023 2022 Numerator Net income 4,200 4,103 8,414 7,638 Denominator Weighted average shares, basic 3,628 3,643 3,628 3,649 Dilutive effect of stock options 11 7 10 9 Diluted shares 3,639 3,650 3,638 3,658 Earnings per share, basic 1.16 1.13 2.32 2.09 Earnings per share, diluted 1.15 1.12 2.31 2.09 (9) Subsequent Events. UTMD has evaluated subsequent events through the date the financial statements were issued, and concluded there were no other events or transactions during this period that required recognition or disclosure in its financial statements. 6 Table of Contents