UTAH MEDICAL PRODUCTS INC 10-Q

Item 1. Financial Statements UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2023 AND DECEMBER 31, 2022 (in thousands) (unaudited) (audited) SEPTEMBER 30, 2023 DECEMBER 31, 2022 ASSETS Current assets: Cash & investments $ 88,209 $ 75,052 Accounts & other receivables, net 3,487 5,538 Inventories 9,709 8,814 Other current assets 442 515 Total current assets 101,847 89,919 Property and equipment, net 10,346 10,224 Goodwill 13,424 13,354 Other intangible assets 53,042 52,755 Other intangible assets - accumulated amortization ( 47,416 ) ( 42,378 ) Other intangible assets, net 5,626 10,377 Total assets $ 131,243 $ 123,874 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 511 $ 1,218 Accrued expenses 3,666 4,742 Total current liabilities 4,177 5,960 Deferred tax liability – Femcare IIA 1,196 1,514 Other long term liabilities 1,256 1,256 Operating lease liability 305 341 Deferred income taxes 607 549 Total liabilities 7,541 9,620 Stockholders' equity: Common stock - $ 0.01 par value; authorized - 50,000 shares; issued - September 30, 2023, 3,629 shares and December 31, 2022, 3,628 shares 36 36 Accumulated other comprehensive income (loss) ( 11,999 ) ( 12,039 ) Additional paid-in capital 521 251 Retained earnings 135,144 126,006 Total stockholders' equity 123,702 114,254 Total liabilities and stockholders' equity $ 131,243 $ 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 NINE MONTHS ENDED SEPTEMBER 30, 2023 AND SEPTEMBER 30, 2022 (in thousands, except per share amounts - unaudited) Three Months Ended Nine Months Ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Sales, net $ 12,505 $ 12,955 $ 37,891 $ 38,707 Cost of goods sold 5,146 4,769 14,951 14,838 Gross profit 7,359 8,186 22,940 23,869 Operating expense Selling, general and administrative 3,252 2,933 9,693 8,779 Research & development 138 112 414 370 Total operating expense 3,390 3,045 10,107 9,149 Operating income 3,969 5,141 12,833 14,720 Other income 812 198 2,239 348 Income before provision for income taxes 4,781 5,339 15,072 15,068 Provision for income taxes 846 1,059 2,723 3,150 Net income $ 3,935 $ 4,280 $ 12,349 $ 11,918 Earnings per common share (basic) $ 1.08 $ 1.18 $ 3.40 $ 3.27 Earnings per common share (diluted) $ 1.08 $ 1.18 $ 3.39 $ 3.26 Shares outstanding - basic 3,629 3,625 3,629 3,641 Shares outstanding - diluted 3,639 3,634 3,638 3,650 Other comprehensive income (loss): Foreign currency translation net of taxes of $ 0 in all periods $ ( 1,012 ) $ ( 2,572 ) $ 41 $ ( 5,377 ) Total comprehensive income $ 2,923 $ 1,708 $ 12,390 $ 6,541 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 NINE MONTHS ENDED SEPTEMBER 30, 2023 AND SEPTEMBER 30, 2022 (in thousands - unaudited) Nine Months Ended September 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 12,349 $ 11,918 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 465 454 Amortization 4,824 4,837 Provision for (recovery of) losses on accounts receivable ( 31 ) 21 Amortization of right-of-use assets 39 39 Deferred income taxes ( 284 ) ( 409 ) Stock-based compensation expense 153 121 Tax benefit attributable to exercise of stock options 12 - Changes in operating assets and liabilities: Accounts receivable and other receivables 2,133 ( 1,059 ) Inventories ( 925 ) ( 2,065 ) Prepaid expenses and other current assets 19 ( 5 ) Accounts payable ( 712 ) 540 Accrued expenses ( 1,093 ) 1,075 Total adjustments 4,600 3,549 Net cash provided by operating activities 16,949 15,467 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for: Property and equipment ( 549 ) ( 771 ) Intangible assets - ( 9 ) Net cash used in investing activities ( 549 ) ( 780 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock - options 117 43 Common stock purchased and retired - ( 2,495 ) Payment of dividends ( 3,211 ) ( 2,112 ) Net cash used in financing activities ( 3,094 ) ( 4,564 ) Effect of exchange rate changes on cash ( 149 ) ( 1,586 ) Net increase in cash and cash equivalents 13,157 8,537 Cash at beginning of period 75,052 60,974 Cash at end of period $ 88,209 $ 69,511 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for income taxes $ 3,489 $ 3,502 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 AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND SEPTEMBER 30, 2022 (In thousands - unaudited) Accumulated Additional Other Total Common Stock Paid-in Comprehensive Retained Stockholders' Shares Amount Capital Income Earnings Equity Balance at June 30, 2023 3,629 $ 36 $ 432 $ ( 10,986 ) $ 132,279 $ 121,762 Shares issued upon exercise of employee stock options for cash 1 - 36 - - 36 Stock option compensation expense - - 53 - - 53 Foreign currency translation adjustment - - - ( 1,012 ) - ( 1,012 ) Common stock dividends - - - - ( 1,071 ) ( 1,071 ) Net income - - - - 3,935 3,935 Balance at September 30, 2023 3,630 $ 36 $ 521 $ ( 11,999 ) $ 135,144 $ 123,702 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 2 - 117 - - 117 Stock option compensation expense - - 153 - - 153 Foreign currency translation adjustment - - - 41 - 41 Common stock dividends - - - - ( 3,212 ) ( 3,212 ) Net income - - - - 12,349 12,349 Balance at September 30, 2023 3,630 $ 36 $ 521 $ ( 11,999 ) $ 135,144 $ 123,702 Balance at June 30, 2022 3,625 $ 36 $ - $ ( 11,858 ) $ 119,293 $ 107,471 Shares issued upon exercise of employee stock options for cash - - 20 - - 20 Stock option compensation expense - - 38 - - 38 Foreign currency translation adjustment - - - ( 2,572 ) - ( 2,572 ) Common stock dividends - - - - ( 1,051 ) ( 1,051 ) Net income - - - - 4,280 4,280 Balance at September 30, 2022 3,625 $ 36 $ 58 $ ( 14,431 ) $ 122,521 $ 108,185 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 1 - 43 - - 43 Stock option compensation expense - - 121 - - 121 Common stock purchased and retired ( 30 ) ( 1 ) ( 947 ) - ( 1,548 ) ( 2,495 ) Foreign currency translation adjustment - - - ( 5,377 ) - ( 5,377 ) Common stock dividends - - - - ( 3,162 ) ( 3,162 ) Net income - - - - 11,918 11,918 Balance at September 30, 2022 3,625 $ 36 $ 58 $ ( 14,431 ) $ 122,521 $ 108,185 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 other recently issued accounting standards will either have no material impact on its consolidated financial position, results of operations or cash flows, or will not apply to its operations. (3) Inventories at September 30, 2023, and December 31, 2022, consisted of the following: September 30, 2023 December 31, 2022 Finished goods $ 2,338 $ 1,896 Work-in-process 1,654 1,193 Raw materials 5,717 5,725 Total $ 9,709 $ 8,814 (4) Stock-Based Compensation. At September 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 September 30, 2023, and 2022, the Company recognized $ 53 and $ 38 , respectively, in stock based compensation cost. In the nine months ended September 30, 2023, and 2022, the Company recognized $ 153 and $ 121 , 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 September 30, 2023. (6) Global 3Q 2023 revenues (USD) by product category: Domestic Outside US Total Labor & Delivery $ 1,066 $ 357 $ 1,423 Gynecology/Electrosurgery/Urology 2,600 2,772 5,372 Neonatal 1,363 521 1,884 Blood Pressure Monitoring and Accessories 2,236 1,590 3,826 Total: $ 7,265 $ 5,240 $ 12,505 Global 9M 2023 revenues (USD) by product category: Domestic Outside US Total Labor & Delivery $ 2,725 $ 788 $ 3,513 Gynecology/Electrosurgery/Urology 7,805 9,076 16,881 Neonatal 3,892 1,150 5,042 Blood Pressure Monitoring and Accessories 7,045 5,410 12,455 Total: $ 21,467 $ 16,424 $ 37,891 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) as of 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 one month of life as of September 30, 2023 of the prior CSI distribution agreement with Femcare Ltd. (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 at the end of 3rd quarter 2023. The following table reconciles the numerator and the denominator used to calculate basic and diluted earnings per share: ( in thousands ) Three months ended Nine months ended September 30, September 30, 2023 2022 2023 2022 Numerator Net income 3,935 4,280 12,349 11,918 Denominator Weighted average shares, basic 3,629 3,625 3,629 3,641 Dilutive effect of stock options 10 9 9 9 Diluted shares 3,639 3,634 3,638 3,650 Earnings per share, basic 1.08 1.18 3.40 3.27 Earnings per share, diluted 1.08 1.18 3.39 3.26 (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