What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-10 compared with 2023-11-13 · 206 added, 280 removed, 64 unchanged (88% of the section changed)

6 unchanged sentences

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

A$ or AUD = Australia Dollars;

AUD = Australia Dollars;

£ or GBP = UK Pound Sterling;

2 unchanged sentences

Analysis of Results of Operations

Income statement results in 3Q and 9M 2023 compared to the same periods of 2022 were as follows:

Income statement results in the first quarter (1Q) of 2024 compared to 1Q 2023 were as follows::

Operating Income

Income Before Tax

Net Income (NI)

Earnings per Diluted Share (EPS)

Worldwide (WW) consolidated sales in 3Q 2023 were $450 lower than in 3Q 2022, and were $816 lower in 9M 2023 compared to 9M 2022.

This essentially was because 3Q 2023 biopharmaceutical OEM sales were $1,217 lower than in 3Q 2022, and were $1,847 lower in 9M 2023 compared to 9M 2022.

Sales invoiced in foreign currencies, which did not include any biopharmaceutical OEM sales, represented 25% of total WW consolidated 3Q 2023 sales (when expressed in USD) and 29% of 9M 2023 total WW consolidated sales.

Constant currency sales, U.S.

dollar sales using the same foreign currency exchange (FX) rates as in the prior year’s same periods, were $155 higher in 3Q 2023 as a result of a stronger EUR and GBP compared to 3Q 2022, but $33 lower for 9M 2023 because of a weaker AUS and CAD, despite a stronger EUR, for 9M 2023 year-to-date.

Profit margins in 3Q and 9M 2023 compared to 3Q and 9M 2022 follow:

Gross Profit Margin (GP/ sales):

Operating Income Margin (OI/ sales):

EBT Margin (EBT/ sales):

Net Income Margin (NI/ sales):

EBT = Income Before Taxes = (Operating Income + Non-Operating Income)

In 9M 2023, UTMD achieved its targeted GP margin (GPM), although somewhat lower than in 9M 2022 due to planned higher manufacturing overhead costs with less absorption because of lower sales.

Because of the relatively short span of time, results for any given three-month period in comparison with a previous three-month period may not be indicative of comparative results for the year as a whole.

The lower 3Q 2023 GPM was a good example of this.

In addition to the lower absorption of higher overhead costs, the Company had an unfavorable product mix due to much higher foreign distributor sales compared to 3Q 2022, and experienced higher than normal medical expenses in its self-funded U.S.

health care plan.

International distributor prices are lower than prices of products sold directly to medical facilities WW.

In addition to the 4.4 percentage-point lower 3Q 2023 GPM and the 1.2 percentage-point lower 9M 2023 GPM, the Operating Income margins in both periods were reduced another 2.8 percentage points by 2023 litigation expenses captured in General & Administrative (G&A) expenses.

The Operating Income margins are Operating Income in the applicable time period divided by sales in the same period.

Due primarily to interest earned on cash balances which are included in Non-operating income, UTMD was able to achieve higher Income Before Tax, Net Income and Earnings per Diluted Share in 9M 2023 compared to 9M 2022.

UTMD’s September 30, 2023 Balance Sheet, in the absence of debt, continued to strengthen with total assets up $0.8 million from the end of 2022.

Ending Cash and Investments were $88.2 million on September 30, 2023 compared to $75.1 million on December 31, 2022, after paying $3.2 million in cash dividends to stockholders and purchasing $0.5 million in new Property and Equipment in 9M 2023.

UTMD’s cash balance increased $3.62/ outstanding share at September 30, 2023 from the end of 2022 with a 4% increase in Net Income, while the stock price declined $14.53/ share.

Stockholders’ Equity (SE) increased $9.4 million in the nine-month period from December 31, 2022 despite the fact that $3.2 million in dividends reduced SE.

Foreign currency exchange (FX) rates for Balance Sheet purposes are the applicable rates at the end of each reporting period.

The FX rates from the applicable foreign currency to USD for assets and liabilities at the end of 3Q 2023 compared to the end of calendar year 2022 and the end of 3Q 2022 follow:

b) Revenues (sales)

Earnings per Share (diluted)

Profit margins in 1Q 2024 compared to 1Q 2023 follow:

Gross Profit Margin (Gross Profit/ sales):

Operating Income Margin (Operating Income/ sales):

EBT Margin (Profits before Income Taxes/ sales):

Net Income Margin (Profit after Taxes/ sales):

Domestic sales in 1Q 2024 were 14% lower and sales outside the U.S.

(OUS) were 3% lower, in USD terms, compared to 1Q 2023.

Using the same foreign currency exchange (FX) rates for sales not invoiced in USD, i.e.

in “constant currency” terms, OUS sales were 4% lower.

Although 31% of consolidated USD sales were invoiced in foreign currencies, the change in FX rates for OUS sales had a minor impact on period-to-period relative financial results.

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

The average FX rates from the applicable foreign currency to USD during 1Q 2024 and 1Q 2023 follow:

The weighted-average positive impact on foreign currency sales was 1.2%, increasing reported USD sales $40 relative to the same foreign currency sales in 1Q 2023.

In constant currency terms, total consolidated 1Q 2024 sales were $1,220 (9.7%) lower than in 1Q 2023.

UTMD’s 1Q 2024 Gross Profit at $6,766 was $1,077 lower than 1Q 2023 Gross Profit of $7,843.

The 13.7% lower Gross Profit was the result of 9.4% lower sales combined with a Gross Profit Margin (GPM), Gross Profit/revenues, almost three percentage points lower than in 1Q 2023.

The lower GPM was due to manufacturing overhead costs which did not decline proportionately to the sales decline.

However, the decline in GPM was less than expected due to a favorable product mix and improved direct labor productivity.

Consolidated Operating Income, which is Gross Profit less Operating Expense, in 1Q 2024 at $3,883 (34.2% of sales) was $556 lower than 1Q 2023 Operating Income of $4,439 (35.5% of sales).

The Operating Income decline was less than the Gross Profit decline as a result of the favorable impact in general & administrative (G&A) expenses of having the CooperSurgical Inc (CSI) Identifiable Intangible Asset (IIA) fully amortized in 4Q 2023.

The CSI IIA amortization expense was $1,105 in 1Q 2023 (and zero in 1Q 2024).

Offsetting the lower CSI IIA amortization expense in G&A expenses were $342 higher litigation expenses.

Combining the changes in CSI IIA amortization and litigation costs with other G&A expense increases, total consolidated G&A expenses were just $668 lower in 1Q 2024 than in 1Q 2023.

The other components of Operating Expense, Product Development (R&D) expenses and Sales & Marketing (S&M) expenses, were $122 and $25 higher in 1Q 2024 than in 1Q 2023, respectively.

The higher R&D expense was related to certification of UTMD’s own biopharma manufacturing pressure sensors.

In sum, Operating Expenses were $522 lower in 1Q 2024 than in 1Q 2023.

Income Before Tax (EBT) benefitted again from higher interest income on UTMD’s cash reserves.

Non-operating income in 1Q 2024, in which interest income is captured, was $915 compared to $681 in 1Q 2023.

Combining the $555 lower Operating Income with $234 higher Non-operating income yielded 1Q 2024 EBT just $321 (6.3%) lower than in 1Q 2023.

In contrast to a lower GPM and Operating Income margin, UTMD’s EBT margin (EBT/sales) improved to 42.3% in 1Q 2024 compared to 40.9% in 1Q 2023.

UTMD’s consolidated income tax provision rate in 1Q 2024 was 17.6% compared to 17.7% in 1Q 2023.

As a result, 1Q 2024 Net Income was 6.1% lower than in 1Q 2023.

During 1Q 2024 UTMD repurchased 43,108 of its shares in the open market at an average cost of $69.37/ share.

UTMD did not repurchase shares in 2023.

Also, because of a lower stock price at the end of 1Q 2024, there was no dilution from outstanding employee stock options for purposes of calculating diluted Earnings per Share (EPS), compared to 8,456 in share dilution in 1Q 2023.

Because of the benefit of lower time-weighted diluted shares, UTMD’s EPS in 1Q 2024 were 5.7% lower than in 1Q 2023.

UTMD’s March 31, 2024 Balance Sheet, in the absence of debt, remained strong.

Ending Cash and Investments were $93.8 million on March 31, 2024 compared to $92.9 million three months earlier on December 31, 2023, despite use of $4.1 million cash during 1Q 2024 to pay for stockholder dividends and share repurchases.

Stockholders’ Equity remained about the same at the end of 1Q 2024 as at the end of 2023, as $4.1 million in dividends and share repurchases which reduced Stockholders’ Equity offset the $4.0 million in 1Q 2024 Net Income which increased Stockholders’ Equity.

FX rates for Balance Sheet purposes are the applicable rates at the end of each reporting period.

The FX rates from the applicable foreign currency to USD for assets and liabilities at the end of 1Q 2024 and the end of 1Q 2023 follow:

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

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

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

UTMD’s T&C of Sale to end user facilities are substantially the same for customers in the U.S.

and outside the U.S.

In the U.S., Ireland, UK, Canada, Australia and New Zealand, UTMD generally accepted orders directly from and shipped directly to end user clinical facilities, as well as third party medical/surgical distributors, under UTMD’s Standard Terms and Conditions (T&C) of Sale during both 1Q 2024 and 1Q 2023.

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

Pricing agreements which are documented arrangements with clinical facilities, or groups of affiliated facilities, if applicable, are established in advance of orders accepted or shipments made.

For existing customers, past actual shipment volumes typically determine the fixed price by part number for the next agreement period of one year or less.

For existing customers, past actual shipment volumes typically determine the fixed price by part number for the next agreement period of one year.

For new customers, the customer’s best estimate of volume is usually accepted by UTMD for determining the ensuing fixed prices for the agreement period.

Prices are not adjusted after an order is accepted.

For the sake of clarity, the separate pricing agreements with clinical facilities based on volume of purchases is not inconsistent with UTMD’s disclosure that the selling price is fixed prior to the acceptance of a specific customer order.

Total WW UTMD consolidated 3Q 2023 sales were $450 (3.0%) lower than in 3Q 2022.

WW constant currency sales were $605 (4.7%) lower.

domestic sales were 15.7% lower (obviously without any FX impact), and outside the U.S.

(OUS) sales were 20.8% higher.

Without the benefit of a weaker USD in converting foreign currency sales, 3Q 2023 OUS sales were 17.2% higher.

Domestic U.S.

sales in 3Q 2023 were $7,265 compared to $8,615 in 3Q 2022.

Domestic sales are invoiced in USD and not subject to FX rate fluctuations.

The components of domestic sales include 1) “direct other device sales” of UTMD’s medical devices to user facilities (and med/surg stocking distributors for hospitals), excluding Filshie device sales, 2) “OEM sales” of components and other products manufactured by UTMD for other medical device and non-medical device companies, and 3) “direct Filshie device sales”.

UTMD separates Filshie device sales from other medical device sales direct to medical facilities because of their significance, and acquisition history.

Domestic direct other device sales, representing 56% of total domestic sales, were $9 (+0.2%) higher in 3Q 2023 than in 3Q 2022.

Domestic OEM sales, representing 28% of total domestic sales, were $1,019 (33.4%) lower, including $1,103 lower U.S.

biopharmaceutical OEM sales.

Direct Filshie device sales, representing 16% of total domestic sales, were $341 (23.0%) lower in 3Q 2023 compared to 3Q 2022.

OUS sales in 3Q 2023 were 20.8% higher at $5,240 compared to $4,340 in 3Q 2022.

The increase in USD-denominated OUS sales was leveraged as a result of a weaker USD relative to the EUR and GBP, which added $155 to OUS sales that were invoiced in GBP, EUR, AUD and CAD foreign currencies in constant currency terms.

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

The weighted-average FX rates from the applicable foreign currency to USD during 3Q 2023 and 3Q 2022 for revenue purposes follow:

The weighted average favorable FX rate difference impact on 3Q 2023 foreign currency OUS sales was 5.2%, increasing reported USD sales by $155 relative to the same foreign currency sales in 3Q 2022.

In constant currency terms, foreign currency sales in 3Q 2023 were 17.2% higher than in 3Q 2022.

The portion of OUS sales invoiced in foreign currencies in USD terms were 25.0% of total consolidated 3Q 2023 sales compared to 19.3% in 3Q 2022.

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

Export sales from the U.S.

to OUS distributors are invoiced in USD.

Direct to end-user foreign currency OUS 3Q 2023 sales in USD terms were 19.6% higher in Ireland, 21.6% lower in Canada, 8.2% higher in France, 30.8% lower in AUS/NZ and 17.2% higher in the UK than in 3Q 2022.

Sales to OUS distributors/ international OEM (including biopharmaceutical) customers were 35.5% higher in 3Q 2023 than in 3Q 2022.

Total consolidated 9M 2023 UTMD WW consolidated sales were $816 (2.1%) lower than in 9M 2022.

Constant currency 9M 2023 sales were $33 (+0.1%) lower due to a slightly stronger USD year-to-date.

domestic sales were 12.1% lower and OUS sales were 15.0% higher.

Domestic U.S.

sales in 9M 2023 were $21,467 compared to $24,429 in 9M 2022.

Direct other device sales, representing 53% of total domestic sales, were $689 (5.7%) lower in 9M 2023 than in 9M 2022.

The lower direct other device sales year-to-date resulted from continued supply chain disruption.

Domestic OEM sales, representing 30% of total domestic sales, were $1,919 (22.8%) lower.

The biopharmaceutical portion of domestic OEM sales were $1,963 (28.2%) lower.

Direct domestic Filshie device sales, representing 17% of total domestic sales, were $354 (9.0%) lower in 9M 2023 compared to 9M 2022 due to lower demand.

OUS sales in 9M 2023 were 15.0% higher at $16,424 compared to $14,278 in 9M 2022.

The increase in 9M 2023 USD-denominated OUS sales was only slightly diminished as a result of a stronger USD which subtracted $33 from OUS sales that were invoiced in GBP, EUR, AUD and CAD foreign currencies (in constant currency terms).

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

The weighted-average FX rates from the applicable foreign currency to USD during 9M 2023 and 9M 2022 for revenue purposes follow:

The weighted-average unfavorable impact on 9M 2023 foreign currency OUS sales was just 0.3%, reducing reported USD sales by $33 relative to the same foreign currency sales in 9M 2022.

In constant currency terms, OUS sales in 9M 2023 were 15.3% higher than in 9M 2022.

The portion of OUS sales invoiced in foreign currencies in USD terms was 28.8% of total consolidated 9M 2023 sales compared to 23.9% in 9M 2022.

Direct to end-user foreign currency OUS 9M 2023 sales in USD terms were 5.3% higher in Ireland, 14.1% lower in Canada, 9.5% higher in France, 21.7% higher in the UK and 18.2% lower in AUS/NZ.

Sales to OUS distributors/OEM (including biopharmaceutical) customers were 21.2% higher in 9M 2023 than in 9M 2022.

Since shipments to OEM customers and OUS distributors typically have long lead times, the current order backlog added to 9M 2023 sales results for those segments provides a fair estimate for 2023 sales as a whole, barring new unresolved raw material supply constraints and further third-party sterilization capacity limits.

Based on the current backlog, management expects that WW biopharmaceutical OEM sales to its largest customer will be about $3 million lower in 2023 than in 2022, representing about 17% of 2023 total consolidated sales compared to 22% in 2022.

This projection is consistent with management’s beginning of year 2023 sales estimates, and suggests a net total annual 2023 consolidated sales decline of about $2 million.

UTMD segments sales into the following general product categories:

gynecology/ electrosurgery, labor & delivery, neonatal critical care, and miscellaneous including blood pressure monitoring kits and accessories as well as related OEM products.

In 3Q 2023 compared to 3Q 2022, WW gynecology/ electrosurgery sales were 6% lower, WW neonatal device sales were 3% higher, WW labor & delivery device sales were 12% higher and WW blood pressure monitoring and related OEM product sales were 8% lower.

In 9M 2023 compared to 9M 2022, WW gynecology/ electrosurgery device sales were 4% higher, WW labor & delivery device sales were about the same, WW neonatal device sales were 10% lower and WW blood pressure monitoring and related OEM product sales were 7% lower.

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

Global 3Q 2023 revenues (USD) by product category:

Labor & Delivery

For the sake of clarity, the separate pricing agreements with clinical facilities based on volume of purchases disclosure is not inconsistent with UTMD’s disclosure that the selling price is fixed prior to the acceptance of a specific customer order.

Total consolidated 1Q 2024 UTMD sales were $1,180 (9.4%) lower than in 1Q 2023.

Constant currency sales were $1,220 (9.7%) lower.

domestic sales were 13.8% lower and OUS sales were 3.5% lower.

Worldwide sales to UTMD’s largest OEM customer, which had grown rapidly in previous years, were $1,046 lower in 1Q 2024 compared to 1Q 2023, which explains most of the sales decline.

Looking forward, the current backlog for 2Q 2024 shipments to this customer, including shipments from UTMD Ireland, is $1.7 million lower than shipments in 2Q 2023.

With the absence of any new orders in 2024, worldwide sales to this customer may be another $5.4 million lower during the remainder of 2024 compared to the last three quarters of 2023.

Domestic sales in 1Q 2024 were $6,192 compared to $7,185 in 1Q 2023.

The components of domestic sales include 1) “direct sales” of UTMD’s medical devices to user facilities (and med/surg stocking distributors for hospitals), excluding Filshie device sales, 2) “OEM sales” of components and other products manufactured by UTMD for other medical device and non-medical device companies, and 3) “Filshie device sales”, manufactured by Femcare and distributed in the U.S.

1) Direct sales, representing 57% of total domestic sales, were $106 (2.9%) lower in 1Q 2024 than in 1Q 2023.

This was due to $139 lower NICU device sales as a result of not yet recapturing business lost in late 2023 from continuing supply chain disruption for raw material components.

2) OEM sales, representing 26% of total domestic sales, were $691 (29.9%) lower.

sales to UTMD’s largest OEM customer, which had grown rapidly in previous years, were $735 lower in 1Q 2024 compared to 1Q 2023.

3) Domestic Filshie device sales were $197 (15.6%) lower in 1Q 2024 compared to 1Q 2023.

Misinformation on social media from unresolved product liability lawsuits seems to be having a negative effect.

OUS sales in 1Q 2024 were $5,149 compared to $5,335 in 1Q 2023.

OUS sales invoiced in GBP, EUR, AUD and CAD currencies were increased $40 as a result of changes in FX rates resulting primarily from a 4.3% stronger GBP.

In other words, constant currency OUS sales were $5,109, which was 4.2% lower than in 1Q 2023.

The foreign currency OUS sales in 1Q 2024 were $3,487, which was 68% of OUS sales and 31% of total 1Q 2024 consolidated sales.

Foreign currency OUS sales in 1Q 2023 were $3,558, which was 67% of OUS sales and 28% of total 1Q 2023 consolidated sales.

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

Sales to UTMD’s largest OEM customer are included in the Blood Pressure Monitoring product category:

WW revenues (USD) by product category:

Gynecology/ Electrosurgery/ Urology

Blood Pressure Monitoring and Accessories*

Global 9M 2023 revenues (USD) by product category:

Labor & Delivery

OUS revenues (USD) by product category:

Gynecology/ Electrosurgery/ Urology

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c) Gross Profit

Gross Profit results from subtracting the costs of manufacturing, quality assurance and receiving materials from suppliers from revenues.

UTMD’s Gross Profit was $827 (10.1%) lower in 3Q 2023 than in 3Q 2022, and $929 (3.9%) lower in 9M 2023 than in 9M 2022.

UTMD price increases to customers since early 2022 were substantially lower than its continued cost increases, with continued “sticky” inflation.

Although direct labor productivity in 3Q 2023 remained consistent with the past, raw material costs continued to increase and higher manufacturing overhead costs were less absorbed by lower revenues.

About half of the 4.4 percentage-point lower Gross Profit margin (GPM) in 3Q 2023 compared to 3Q 2022 was due to $1,039 (+52%) higher sales to OUS distributors.

Gross Profit results from subtracting the costs of manufacturing products, including quality assurance and freight for receiving raw materials from vendors, from revenues.

UTMD’s Gross Profit was $1,077 (13.7%) lower in 1Q 2024 than in 1Q 2023.

Gross Profit declined more than revenues due to lower absorption of manufacturing overhead costs which were 3.6% lower when sales were 9.4% lower.

Because management expects revenues to decline further during the remainder of 2024, taken together with manufacturing overhead expenses not declining, management has projected a greater percentage decline in Gross Profit for the year as a whole.

d) Operating Income

Operating Income results from subtracting Operating Expenses from Gross Profit.

Operating Income in 3Q 2023 was $3,969 compared to $5,141 in 3Q 2022, a $1,171 (22.8%) decline;

and was $12,833 in 9M 2023 compared to $14,720 in 9M 2022, a $1,887 (12.8%) decline.

Operating Expenses are comprised of Sales and Marketing (S&M) expenses, General and Administrative (G&A) expenses and Product Development (R&D) expenses.

The following table summarizes Operating Expenses in 3Q and 9M 2023 compared to the same periods in 2022 by Operating Expense (OE) category:

Changes in foreign currency exchange rates did not have a significant impact on consolidated financial results in 2023.

A stronger EUR and GBP in 3Q 2023 helped increase OUS S&M expense by $3 and OUS G&A expense by $51.

An average slightly stronger USD for 9M 2023, reduced OUS S&M expenses by $4, OUS G&A expenses by $26 and OUS R&D expenses by $1.

The following table summarizes “constant currency” Operating Expenses in 3Q and 9M 2023 compared to the same periods in 2022 by Operating Expense (OE) category:

3Q 2023 const FX

9M 2023 const FX

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

A division of G&A expenses by location follows.

G&A expenses include non-cash expenses from the amortization of Identifiable Intangible Assets (IIA) associated with the Filshie Clip System, which is also separated out below:

G&A Expense Category

IIA Amort– UK:

IIA Amort– CSI:

Although the IIA amortization expense in either USD or GBP, depending on the location where expensed, was the same as in the prior year’s same periods, the 3Q 2023 Operating Income margin was diluted by 0.7 percentage points, and the 9M 2023 Operating Income margin was diluted by 0.2 percentage points, due to a lower sales denominator and the GBP FX rate difference.

Non-cash IIA amortization expense was 57% of total G&A expenses in both 3Q 2023 and 9M 2023.

Litigation expenses, included in the Other-US G&A Expense category above, were about 2.8% of sales in both 3Q 2023 and 9M 2023.

Litigation expenses were 1.4% of sales in 3Q 2022 and 1.1% of sales in 9M 2022.

In other words, higher litigation expenses reduced UTMD’s Operating Income margin by another 1.4 percentage-points in 3Q 2023, and another 1.7 percentage-points in 9M 2023.

OUS G&A expenses in USD terms were $818 in 3Q 2023 compared to $745 in 3Q 2022.

OUS G&A expenses were $2,416 in 9M 2023 compared to $2,379 in 9M 2022.

The constant currency table below shows how the changes in FX rates affected reported OUS G&A expenses for 3Q 2023 ($51 higher) and 9M 2023 ($26 lower):

G&A Expense Category

3Q 2023 const FX

9M 2023 const FX

IIA Amort– UK:

Total OUS G&A:

In summary, UTMD’s Operating Income margin in 3Q 2023 was 31.7% of sales compared to 39.7% of sales in 3Q 2022;

and was 33.9% of sales in 9M 2023 compared to 38.0% of sales in 9M 2022.

An explanation for changes in 3Q and 9M 2023 Operating Income margins from the prior year’s same periods follows:

Expense Category

3Q Pct-Point Reduction

9M Pct-Point Reduction

GPM difference:

Litigation Expense (G&A)

IIA Amortization Expense (G&A)

All Other Operating Expenses

Reduction in Operating Income margin:

Because of the significance of the IIA amortization expenses, and to remind stockholders of the history, the initial IIA amount of the 2011 Femcare UK purchase was £23,998.

After 12.5 years of amortization, the IIA balance is £3,915 as of the end of 3Q 2023.

For both 3Q 2023 and 3Q 2022 in GBP terms, the IIA amortization expenses were £397.

For both 9M 2023 and 9M 2022, the IIA amortization expenses were £1,192.

The converted USD amortization expense in each period then varied according to the USD/GBP FX rate, which explains the difference in IIA amortization expense in IIA Amort-UK row in the table above.

The initial amount of IIA for the 2019 acquisition of 4.75 years’ remaining exclusive U.S.

Filshie device distribution and intellectual property rights from CooperSurgical Inc (CSI) was $21,000.

The straight-line amortization of the IIA is $1,105/ calendar quarter over the remaining 4.75 years of the prior distribution agreement at the time of acquisition.

After 4.67 years of amortization, the CSI IIA balance as of September 30, 2023 is $368.

The CSI IIA amortization expenses were the same in both 2023 and 2022 3Q and 9M periods.

Because the non-cash IIA amortization expenses represent a majority of UTMD’s Operating Expenses, UTMD provides the following table that separates the IIA amortization expenses from all other Operating Expenses:

IIA amortization expense

All other Operating expense

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

Consolidated Operating Expenses were $2,882 in 1Q 2024 (25.4% of sales) compared to $3,404 in 1Q 2023 (27.2% of sales).

Ignoring the portion of Operating Expenses that were litigation expenses and non-cash IIA amortization expenses, Operating Expenses in 1Q 2024 were 14.4% of consolidated sales compared to 11.2% of sales in 1Q 2023.

As noted above, the main FX rate differences in 1Q 2024 compared to 1Q 2023 were a stronger GBP and a weaker AUD relative to the USD.

The net FX impact on OUS Operating Expense was minor.

A stronger GBP in 1Q 2024 compared to 1Q 2023 increased IIA amortization expense captured in the G&A category in the UK by $21.

All other OUS Operating Expenses were increased by $7.

Consolidated G&A expenses were $2,205 (19.4% of sales) in 1Q 2024 compared to $2,873 (22.9% of sales) in 1Q 2023.

G&A expenses include litigation costs which were $751 in 1Q 2024 compared to $409 in 1Q 2023.

G&A expenses in 1Q 2024 included $504 (4.4% of sales) of non-cash expense from the amortization of IIA resulting from the 2011 Femcare acquisition, which were $483 (3.9% of sales) in 1Q 2023.

The increase was the result of a stronger GBP as the Femcare GBP-denominated expense was the same in both periods.

The major G&A expense change was the $1,105 IIA amortization expense in 1Q 2023 which was zero in 1Q 2024.

That prior expense had resulted from UTMD’s purchase in 2019 of the CSI remaining U.S.

exclusive Filshie intangible and distribution rights, and represented 8.8% of 1Q 2023 sales.

Excluding litigation costs and non-cash Filshie-related IIA amortization expenses, G&A expenses were $950 (8.4% of sales) in 1Q 2024 compared to $876 (7.0% of sales) in 1Q 2023.

The change in FX rates increased 1Q 2024 OUS G&A expenses by $27, comprised of increasing IIA amortization expense by $21 and all other G&A expenses by $6.

UTMD’s Operating Income margin (Operating Income/ sales), excluding IIA amortization and litigation expense, was 45.3% in 1Q 2024 compared to 51.4% in 1Q 2023.

S&M expenses were $412 (3.6% of sales) in 1Q 2024 compared to $387 (3.1% of sales) in 1Q 2023.

The change in FX rates increased 1Q 2024 OUS S&M expenses by $1.

The additional $24 increase was primarily due to increases in S&M salaries and benefits for employees on board in both periods.

R&D expenses in 1Q 2024 were $266 (2.3% of sales) compared to $144 (1.1% of sales) in 1Q 2023.

There were no OUS R&D expenses.

The $122 increase was primarily due to testing and certification of materials required for biopharma manufacturing OEM customers.

In summary, Operating Income in 1Q 2024 was $3,883 (34.2% of sales) compared to $4,439 (35.5% of sales) in 1Q 2023.

The only slightly lower 1Q 2024 Operating Income margin of 34.2% compared to 35.5% in 1Q 2023 was due to lower Gross Profit and higher litigation and R&D expenses being offset by the expiration of CSI IIA amortization expense.

A summary comparison of (USD) consolidated Operating Expenses follows:

CSI IIA amortization

Femcare IIA amortization

Litigation Expense

All Other G&A Expenses

Total Operating Expenses:

Percent of Sales:

IIA amortization expense

All other G&A expense

Total G&A Expenses:

Therefore, when the two Filshie-related IIA balances are fully amortized, stockholders can look forward to a substantial increase in EBT.

The Femcare acquisition IIA amortization expense has just 2.5 more years to run at about $503 per quarter using the same USD/GBP FX rate as in 3Q 2023.

The CSI IIA amortization expense will be fully amortized in 4Q 2023 with just a $368 remaining expense.

e) Non-operating expense/ Non-operating income

Non-operating expense includes 1) bank fees;

2) losses from remeasuring the value of EUR cash bank balances in the UK, and GBP cash balances in Ireland, in USD terms;

and 3) losses from disposition of assets.

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

2) rent of underutilized property;

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

4) gains from dispositions of assets;

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

UTMD’s net Non-operating income in 3Q 2023 was $811 compared to $198 in 3Q 2022.

Net non-operating income in 9M 2023 was $2,239 compared to $348 in 9M 2022.

In 3Q 2023 a gain of $1 resulted from remeasurement of the value of foreign currency bank balances compared to a $2 loss in 3Q 2022.

UTMD recognized a $6 loss from remeasurement of the value of foreign currency bank balances in both 9M 2023 and 9M 2022.

Royalties received were $0 in 3Q 2023 compared to $5 in 3Q 2022, and $10 in 9M 2023 compared to $15 in 9M 2022.

Interest earned on cash balances were $743 and $2,038 in 3Q and 9M 2023 respectively, compared to interest of $152 and $211 in 3Q and 9M 2022 respectively.

Net Non-operating expense, or net Non-operating income, results from the combination of 1) expenses from loan interest and bank fees;

2) expenses or income from losses or gains from remeasuring the value of EUR cash bank balances in the UK, and GBP cash balances in Ireland, in USD terms;

and 3) income from rent of underutilized property, investment income, royalties received from licensing the Company’s technology and other miscellaneous income.

Net Non-operating income in 1Q 2024 was $915 compared to $681 in 1Q 2023.

The primary difference was due to higher average cash balances in 1Q 2024 compared to 1Q 2023 with higher interest rates, which resulted in $283 higher interest income.

UTMD received $43 lower Non-operating income in 1Q 2024 from renting underutilized property in Ireland compared to 1Q 2023, and the same $5 in Non-operating income from royalties.

UTMD realized a $1 loss in 1Q 2024 compared to a slight gain at the end of 1Q 2023 from remeasurement of foreign currency bank balances.

f) Income Before Income Taxes (EBT)

EBT results from subtracting net Non-operating expense or adding net Non-operating income from or to, as applicable, Operating Income.

EBT results from adding net Non-operating income or subtracting net Non-operating expense to or from Operating Income, as applicable.

Consolidated 1Q 2024 EBT was $4,798 (42.3% of sales) compared to $5,119 (40.9% of sales) in 1Q 2023.

Consolidated 9M 2023 EBT was $15,072 (39.8% of sales) compared to $15,068 (38.9% of sales) in 9M 2022.

The $321 (6.3%) lower 1Q 2024 EBT compared to 1Q 2023 was the result of $555 lower Operating Income offset in part by $234 higher net Non-operating income.

The EBT of Utah Medical Products, Inc.

was $7,955 in 9M 2023 compared to $9,607 in 9M 2022.

The EBT of Utah Medical Products, Ltd (Ireland) was EUR 6,279 in 9M 2023 compared to EUR 5,074 in 9M 2022.

The US GAAP EBT of Femcare Group Ltd (Femcare Ltd., UK and Femcare Australia Pty Ltd) was GBP (53) in 9M 2023 compared to GBP (279) in 9M 2022.

The EBT of Utah Medical Products Canada, Inc.

(dba Femcare Canada) was CAD 474 in 9M 2023 compared to CAD 443 in 9M 2022.

The EBT of UTMD’s manufacturing subsidiaries varies as a result of intercompany shipments which are eliminated in the consolidation of financial results.

was $2,806 in 1Q 2024 compared to $2,562 in 1Q 2023.

The EBT of Utah Medical Products, Ltd (Ireland) was EUR 1,640 in 1Q 2024 compared to EUR 1,962 in 1Q 2023.

The EBT of Femcare Group Ltd (Femcare Ltd., UK and Femcare Australia Pty Ltd) was GBP (101) in 1Q 2024 compared to GBP 23 in 1Q 2023.

The 1Q 2024 EBT of Utah Medical Products Canada, Inc.

was CAD 66 in 1Q 2024 compared to CAD 158 in 1Q 2023.

EBITDA is a non-US GAAP metric that measures profitability performance without factoring in effects of financing, accounting decisions regarding non-cash expenses, capital expenditures or tax environments.

Excluding the noncash effects of depreciation, amortization of intangible assets and stock option expense, 3Q 2023 consolidated EBT excluding the remeasured bank balance currency gain or loss and interest expense (“adjusted consolidated EBITDA”) was $6,604 compared to $7,111 in 3Q 2022.

Adjusted consolidated EBITDA was $20,520 in 9M 2023 compared to $20,487 in 9M 2022.

Adjusted consolidated EBITDA for the previous four calendar quarters (TTM) was $27,924 as of September 30, 2023.

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

UTMD’s adjusted consolidated EBITDA as a percentage of sales was 54.2% in 9M 2023 compared to 52.9% in 9M 2022.

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

Excluding the noncash effects of depreciation, amortization of intangible assets and stock option expense, 1Q 2024 consolidated EBT excluding the remeasured bank balance currency gain or loss and interest expense (“adjusted consolidated 1Q 2024 EBITDA”) were $5,547 compared to $6,919 in 1Q 2023.

Management believes that the 1Q 2024 EBITDA operating performance represents a start in 2024 that is consistent with projections provided in its 2023 SEC 10-K Report.

UTMD’s trailing last twelve-month EBITDA was $25,262.

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

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g) Net Income

Net Income is EBT minus a provision for income taxes.

Net Income in 3Q 2023 of $3,935 (31.5% of sales) was 8.1% lower than Net Income of $4,280 (33.0% of sales) in 3Q 2022.

Net Income in 9M 2023 of $12,349 (32.6% of sales) was 3.6% higher than Net Income of $11,918 (30.8% of sales) in 9M 2022.

The average consolidated income tax provisions (as a % of the same period EBT) in 3Q 2023 and 3Q 2022 were 17.7% and 19.8% respectively, and were 18.1% and 20.9% in 9M 2023 and 9M 2022 respectively.

The consolidated income tax provision rate varies as the mix in taxable income among U.S.

and foreign subsidiaries with differing income tax rates differs from period to period.

The lower 2023 tax provision rates resulted from the EBT of Utah Medical Products, Ltd (Ireland), with the lowest sovereignty corporate income tax rate, growing disproportionately more than UTMD’s EBT from other sovereign entities, and a portion of UTMD’s 2023 Non-operating Income generated from interest on high grade tax-exempt municipal bonds.

UTMD has consistently paid millions of dollars in income taxes annually.

The basic corporate income tax rates in each of the sovereignties were the same as in the prior year, except for the UK.

The UK corporate income rate changed from 19% to 25% on April 1, 2023.

Net Income in 1Q 2024 of $3,956 was 6.1% lower than the Net Income of $4,214 in 1Q 2023.

UTMD’s Net Income margin, Net Income divided by consolidated sales, was 34.9% in 1Q 2024 and 33.7% in 1Q 2023.

The average consolidated income tax provision rates (as a % of EBT) were 17.6% in 1Q 2024 and 17.7% in 1Q 2023.

h) Earnings Per Share (EPS)

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

Diluted EPS in 3Q 2023 were $1.081 compared to $1.178 in 3Q 2022, an 8.2% decrease.

Diluted EPS in 9M 2023 were $3.394 compared to diluted EPS of $3.265 in 9M 2022, a 4.0% increase.

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

EPS in 1Q 2024 at $1.093 were 5.7% lower than the $1.159 in 1Q 2023.

UTMD’s smaller decline in EPS relative to Net Income was a result of 18,118 fewer diluted shares used to calculate EPS in 1Q 2024 compared to 1Q 2023.

Diluted shares were 3,618,168 in 1Q 2024 compared to 3,636,286 in 1Q 2023.

The higher diluted shares in 3Q 2023 were the result of exercise of employee options.

The number of shares used for calculating 3Q 2023 EPS was higher than September 30, 2023 actual outstanding shares because of a time-weighted calculation of average outstanding shares plus dilution from unexercised employee and director options.

Outstanding shares at the end of 3Q 2023 were 3,629,525 compared to 3,627,767 at the end of calendar year 2022.

The difference was due to 1,758 shares in employee option exercises during 9M 2023.

For comparison, actual outstanding shares were 3,625,195 at the end of 3Q 2022.

The total number of outstanding unexercised employee and outside director options at September 30, 2023 was 65,301 at an average exercise price of $73.83, including shares awarded but not yet vested.

This compares to 49,895 unexercised option shares at the end of 3Q 2022 at an average exercise price of $69.00/ share, including shares awarded but not vested.

The number of shares added as a dilution factor for 3Q 2023 was 9,309 compared to 9,220 in 3Q 2022.

The number of shares added as a dilution factor for 9M 2023 was 9,918 compared to 9,424 in 9M 2022.

In October 2022, 20,600 option shares were awarded to 40 employees at an exercise price of $82.60.

No options have been awarded in 2023.

UTMD paid $1,071 ($0.295/share) in dividends to stockholders in 3Q 2023 compared to $1,051 ($0.290/ share) paid in 3Q 2022.

Dividends paid to stockholders during 3Q 2023 were 27% of 3Q 2023 Net Income.

UTMD paid $3,211 ($0.295/share) in dividends to stockholders in 9M 2023 compared to $2,111 ($0.290/ share) paid in 9M 2022.

The difference was due to an earlier payment of a special dividend at the end of 2021 instead of in 1Q 2022.

No UTMD shares have been purchased in the open market in 2023.

In 2Q 2022, the Company purchased 30,105 UTMD shares at an average cost of $82.88/ share.

Outstanding shares were 3,588,336 at the end of 1Q 2024.

The number of shares used for calculating EPS was higher than ending shares because of a time-weighted calculation of average outstanding shares for option shares exercised and for shares which were repurchased during the quarter.

There was no dilution from unexercised employee options.

However, the total number of outstanding unexercised employee and outside director options at March 31, 2024 was 81,995 at an average exercise price of $75.10, including shares awarded but not yet vested.

This compares to 84,301 unexercised option shares at the end of 2023 at an average exercise price of $74.56/ share, including shares awarded but not vested.

There were no shares added for 1Q 2024 EPS dilution from options because the average exercise price was higher than the 1Q 2024 ending share price of $71.11.

The number of shares added as a dilution factor in 1Q 2023 was 8,456.

No options were awarded in 1Q 2024 or 1Q 2023.

During the remainder of 2023 (after 1Q 2023), 19,000 non-qualified option shares were awarded to 48 employees at an exercise price of $77.07.

Outstanding shares at the end of 1Q 2024 were 3,588,336 compared to 3,629,525 at the end of calendar year 2023 and 3,628,067 at the end of 1Q 2023.

The difference in outstanding shares at the end of 1Q 2024 compared to the end of 2023 resulted from 43,108 shares repurchased in the open market and 1,919 employee options exercised during 1Q 2024.

UTMD repurchased 43,108 of its shares at an average price of $69.37 during 1Q 2024.

Because of a time-weighted calculation, the full antidilution impact of 1Q 2024 repurchases won’t be felt until 2Q 2024.

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

i) Return on Stockholder Equity (ROE) and Stock Value

There were no stock repurchases in 2023.

UTMD paid $1,089 ($0.300/share) in cash dividends to stockholders in 1Q 2024.

UTMD paid $1,070 ($0.295/share) in cash dividends to stockholders in 1Q 2023.

UTMD’s closing share price at the end of 1Q 2024 was $71.11, down 16% from the $84.22 closing price at the end of 2023.

The closing share price at the end of 1Q 2023 was $94.77.

i) Return on Equity (ROE)

ROE is the portion of Net Income retained by UTMD to internally finance its growth, divided by the average accumulated Stockholders’ Equity for the applicable time period.

After payment of cash dividends to stockholders, annualized ROE in 9M 2023 was 10% compared to annualized ROE of 12% in 9M 2022.

Before the payment of dividends, annualized ROE in 9M 2023 was 14% compared to 15% in 9M 2022.

The lower ROE in 9M 2023 was due to an 11% increase in average accumulated stockholders’ equity divided into Net Income that grew only 4%.

The larger increase in average stockholders’ equity was due to accumulation of cash.

Targeting a high ROE of 20% (before dividends) remains a key financial objective for UTMD management.

UTMD paid $1,071 ($0.295/share) in dividends to stockholders in 3Q 2023 compared to $1,051 ($0.290/ share) paid in 3Q 2022.

Dividends paid to stockholders during 3Q 2023 were 27% of 3Q 2023 Net Income.

UTMD paid $3,211 ($0.295/share) in dividends to stockholders in 9M 2023 compared to $2,111 ($0.290/ share) paid in 9M 2022.

The main difference was due to an earlier payment of a special dividend at the end of 2021 instead of in 1Q 2022.

Dividends paid to stockholders during 9M 2023 were 26% of 9M 2023 Net Income.

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

UTMD’s closing share price at the end of 3Q 2022 was $85.31.

Annualized ROE (before stockholder dividends) in 1Q 2024 was 12% and in 1Q 2023 was 15%.

The higher ROE in 1Q 2023 was due to 7% higher Net Income divided by 9% lower average Stockholders’ Equity.

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

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

Liquidity and Capital Resources

j) Cash flows

Net cash provided by operating activities, including adjustments for depreciation and amortization and other non-cash expenses along with changes in working capital, totaled $16,949 in 9M 2023 compared to $15,467 in 9M 2022.

The $1,483 higher cash provided by operating activities in 9M 2023 was due to $431 higher Net Income and to working capital differences from 1) a $1,141 smaller increase in inventories in 9M 2023 compared to 9M 2022 and 2) a $2,133 decrease in trade accounts receivable in 9M 2023 instead of a $1,071 increase in 9M 2022, which were offset by 1) a $711 decrease in accounts payable instead of a $540 increase in 9M 2022 and 2) a $1,093 decrease in accrued expenses instead of a $1,075 increase in 9M 2022.

Capital expenditures for property and equipment (PP&E) were $549 in 9M 2023 compared to $771 in 9M 2022.

The capital expenditures in both years were due to expansion in manufacturing equipment in both Utah and Ireland.

Capital expenditures for intangible assets were none in 9M 2023 compared to $9 in 9M 2022.

UTMD made cash dividend payments of $3,211 in 9M 2023 compared to $2,111 in 9M 2022.

A special dividend declared in 4Q 2021 was paid earlier in December 2021 instead of January 2022.

There were $2,495 in share repurchases in 9M 2022 compared to no share repurchases in 9M 2023.

In 9M 2023 the Company received $117 and issued 1,758 shares of stock on the exercise of employee and director stock options.

Option exercises in 9M 2023 were at an average price of $66.40 per share.

In comparison, in 9M 2022 the Company received $43 and issued 563 shares of stock on the exercise of employee and director stock options.

Option exercises in 9M 2022 were at an average price of $75.98 per share.

Management believes that current cash balances, income from operations and effective management of working capital will provide the liquidity needed to finance internal growth plans.

The Company may utilize cash not needed to support normal operations in one or a combination of the following:

Net Income provided $258 less to cash in 1Q 2024 than in 1Q 2023.

Other differences in cash provided during the two periods were a $1,355 higher source of cash from reduction in inventories along with $422 and $199 higher sources of cash from increases in accounts payable and accrued expenses, respectively, offset by a $2,027 higher use of cash for accounts receivable, a $1,082 lower increase in amortization expense and a $189 greater decrease in deferred income taxes.

Capital expenditures for property and equipment (PP&E) netting disposal were $(5) in 1Q 2024 compared to $43 in 1Q 2023.

Depreciation of PP&E was $156 in 1Q 2024 compared to $155 in 1Q 2023.

Cash dividends paid to stockholders in 1Q 2024 were $1,089 compared to $1,070 in 1Q 2023.

UTMD spent $2,990 in 1Q 2024 to repurchase 43,108 of its shares.

No shares were repurchased in 1Q 2023.

In 1Q 2024, UTMD received $96 and issued 1,919 shares of its stock upon the exercise of employee stock options.

Option exercises in 1Q 2024 were at an average price of $50.15 per share.

In comparison, 1Q 2023 UTMD received $21 and issued 300 shares of its stock upon the exercise of employee stock options.

Option exercises in 1Q 2023 were at an average price of $69.83 per share.

Management believes that current cash balances, income from operations and effective management of working capital will provide the liquidity needed to meet the challenges of the current economic environment in achieving operating objectives, to maintain the capability to make opportunistic investments that will provide for growth in future profits and to continue to allocate capital in a way that will maximize stockholder value over time.

During the remainder of 2024 the Company may utilize cash not needed to support normal operations in one or a combination of the following:

1) in general, to continue to invest at an opportune time in ways that will enhance future profitability;

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k) Assets and Liabilities

September 30, 2023 total consolidated assets were $131,243, a net increase of $7,369 from December 31, 2022.

Consolidated Current Assets alone increased $11,928, as cash increased $13,157 and inventories increased $895, while receivables declined by $2,051.

The smaller total asset increase was due to an offsetting $4,559 decrease in long term assets, Net Intangible Assets and Property, Plant & Equipment (PP&E).

Net Intangible Assets declined $4,682 as a result of amortization but combined with a stronger GBP for remaining Femcare IIA.

OUS PP&E decreased $199, primarily as a result of $179 in USD-denominated depreciation, but also, except for the GBP, weaker quarter-ending foreign currencies for remaining OUS PP&E assets.

UTMD’s Ireland subsidiary EUR-denominated assets and liabilities on September 30, 2023 were translated into USD at an FX rate 1.0% lower (weaker EUR relative to the USD) than the FX rate at the end of 2022.

UTMD’s UK subsidiary GBP-denominated assets were translated into USD at an FX rate 1.1% higher (stronger GBP) than the FX rate at the end of 2022.

UTMD’s Australia subsidiary AUD-denominated assets were translated into USD at an FX rate 5.2% lower (weaker AUD) than the FX rate at the end of 2022.

UTMD’s Canada subsidiary CAD-denominated assets were translated into USD at an FX rate about the same as the FX rate at the end of 2022.

The net book value of WW consolidated PP&E increased $123 at September 30, 2023 from the end of 2022 due to the period-ending changed FX rates above, $549 in new asset purchases and $465 in depreciation.

Working capital (Current Assets minus Current Liabilities) was $97,670 at September 30, 2023 compared to $83,959 at December 31, 2022.

The primary sources of the $13,711 working capital increase were from consolidated increases of $13,157 in cash and $895 in inventories together with decreases of $707 in Accounts Payable and $1,076 in Accrued Liabilities, offset by a $2,051 decline in receivables.

In other words, independently from the change in cash, a $1,783 decrease in consolidated Current Liabilities together with the $895 inventory increase offset the $2,051 decrease in receivables.

Management believes that UTMD’s working capital remains sufficient to meet normal operating needs, as well as providing a cushion for unpredictable short-term negative events, new capital expenditures and continued cash dividend payments to stockholders.

September 30, 2023 Net Intangible Assets (goodwill plus other intangible assets, less amortization) declined $4,682 from the end of 2022.

No new intangible assets were acquired in 9M 2023.

At September 30, 2023, Net Intangible Assets including goodwill were less than 15% of consolidated Total Assets compared to 19% at year-end 2022, and 20% one year ago at September 30, 2022.

The long-term deferred tax liability (DTL) balance for Femcare IIA ($9,084 on the date of the acquisition) was $1,195 (£979) at September 30, 2023, compared to $1,513 (£1,253) at December 31, 2022, and $1,479 (£1,328) at September 30, 2022.

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

The DTL declined $318 at September 30, 2023 from December 31, 2022, as a result of 9M 2023 amortization expense of $1,484, which reduced the DTL balance by $371 (using UK tax rate = 25%).

The remaining difference was due to the FX rate when converting the GBP to USD at September 30, 2023.

UTMD’s total debt ratio (Total Liabilities/ Total Assets) as of September 30, 2023 was less than 6%, including a remaining $1,675 Repatriation Tax liability from the 2017 “Tax Cuts and Jobs Act” payable over another two years.

UTMD’s total debt ratio as of December 31, 2022 was 8%, and as of September 30, 2022 was 9%.

The $7,369 increase in Total Liabilities and Stockholders’ Equity (same as the increase in Total Assets) at September 30, 2023 from December 31, 2022 was due to an increase in Stockholders’ Equity, as Total Liabilities declined $2,079.

Stockholders’ Equity increased $9,448 at September 30, 2023 from December 31, 2022.

Stockholders’ equity increased during 9M 2023 from $12,349 in Net Profit, but was reduced by $3,211 in dividends paid to stockholders.

UTMD’s March 31, 2024 Balance Sheet, in the absence of debt, continued to be strong.

At March 31, 2024 total consolidated assets were practically the same as at December 31, 2023, but were $7.7 million higher from a year earlier at March 31, 2023.

At March 31, 2024 compared to three months earlier at the end of 2023, UTMD’s cash and investments increased $939 to $93.8 million.

Compared to a year earlier at March 31, 2023, cash and investments increased $12.9 million.

Inventories declined $342 from the end of 2023, and $0.7 million from a year earlier.

Working capital at the end of 1Q 2024 remained about the same as at the end of 2023, but was $12.6 million higher than at March 31, 2023, primarily as a result of the increase in cash.

UTMD’s strong current ratio improved to 19.6 at March 31, 2024 from 15.7 at March 31, 2023.

The current ratio at the end of 2023 was 22.6.

Consolidated Accounts Receivable (net of allowances) increased $201 at March 31, 2024 from the end of 2023, but declined $0.2 million compared to March 31, 2023.

On a rolling sales quarter basis, the aging of receivables remained at a healthy 28.5 days at the end of 1Q 2024 compared to 24.3 days at the end of 2023, and 27.3 days at the end of March 2023.

Net fixed assets at March 31, 2024 compared to December 31, 2023 declined $286 from $156 in depreciation, $(5) in capital expenditures and the impact of the period-to-period foreign currency exchange (FX) rates for assets OUS.

FX rates for Balance Sheet purposes are the applicable rates at the end of each reporting period.

The FX rates from the applicable foreign currency to USD for assets and liabilities at the end of 1Q 2024 and the end of 2023 follow:

At March 31, 2024, net Intangible Assets declined $611 to 13.3% of total consolidated assets from 13.8% on December 31, 2023, as a result of $513 in amortization and the impact of an FX rate change in the GBP.

The decline in net Intangible Assets from a year earlier was $4.4 million, as the Intangible Asset associated with the purchase of CSI use of intangible and exclusive U.S.

distribution rights was fully amortized in October 2023.

A $765 increase in current liabilities at March 31, 2024 compared to December 31, 2023 was a result of a $535 increase in accrued liabilities and a $230 increase in accounts payable.

But current liabilities at March 31, 2024 were $599 lower from a year earlier.

The current liability changes resulted from normal business fluctuations.

Long-term liabilities at March 31, 2024 compared to December 31, 2023 declined $211 primarily as a result of a $135 reduction in the deferred tax liability for the Femcare Ltd GBP IIA to $986 from $1,121 at the end of 2023.

The Femcare deferred tax liability was $1,456 at March 31, 2023, and $9,084 on the date of the 2011 acquisition.

This long-term liability will be fully amortized in March 2026.

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

There was also a 1Q 2024 $67 decline in deferred income taxes in the U.S.

UTMD’s total debt ratio (total liabilities/total assets) as of March 31, 2024 was 5.7% compared to 5.3% as of December 31, 2023, and 7.6% on March 31, 2023.

As of March 31, 2024, Stockholders’ Equity (SE) increased $9.7 million compared to a year earlier at March 31, 2023 despite a reduction in SE from the $7.3 million combination of share repurchases and ($1.19/ share) in stockholder cash dividends paid during the last twelve months.

During 1Q 2024, SE decreased $570 from the end of 2023 while the company paid $1,089 in dividends and repurchased $2,990 in stock, which reduced SE by $4.1 million.

l) Management's Outlook

As outlined in its December 31, 2022 SEC 10-K report, UTMD’s plan for 2023 was to

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

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.;

The first quarter of 2024 results were consistent with management projections for 2024 as described in UTMD’s 2023 Form SEC 10-K.

But to be clear, the projections included a progressive decline in financial results during the remainder of the year.

The major projected change in 2024 financial results compared to 2023 has to do with losing UTMD’s largest biopharma pressure sensor OEM customer.

We understand that they have moved their sensor manufacturing work in-house, to their own non-U.S.

In 1Q 2024 WW sales to this customer were $1.0 million lower than in 1Q 2023, accounting for 89% of the period-to-period quarterly revenue decline.

Assuming no new orders from this customer will be received by UTMD, which is consistent with experience to date in 2024, OEM sales to this customer will be $1.7, $2.0 and $1.8 million lower in 2Q, 3Q and 4Q 2024 respectively.

In addition, UTMD’s largest distributor of blood pressure monitoring medical devices in China has postponed its 4Q 2024 shipments, which were $1.2 million in 4Q 2023 revenues.

In other words, the total decline projected in financial results becomes greater as the current year progresses.

Objectives for 2024 remain to

1) exploit UTMD’s pre-qualified status to introduce a line of high-pressure process control transducer configurations directly to biopharmaceutical manufacturers;

2) continue to leverage OUS distribution and manufacturing synergies by further integrating capabilities and resources in multinational operations;

3) focus on defending the proven safety and effectiveness of the Filshie Clip System in the U.S.;

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

5) continue to achieve excellent overall financial operating performance;

5) continue to achieve excellent overall financial operating performance despite a contraction in revenues;

6) utilize positive cash generation to continue providing cash dividends to stockholders and make open market share repurchases if/ when the UTMD share price seems undervalued;

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

Generally, the Company continues to execute its 2023 plan outlined above.

In 9M 2023, UTMD achieved higher Net Income and EPS, achieving continued excellent overall financial performance.

As expected, 2023 OEM revenues substantially declined and “sticky” inflation on manufacturing costs challenged UTMD’s GPM.

But the increase in Non-operating Income from higher interest on cash reserves more than offset the decline in Operating Income from a lower GPM combined with inflation in Operating Expenses including higher litigation expenses.

7) remain vigilant for affordable accretive acquisition opportunities which may be brought about by difficult economic conditions on small, innovative companies.

m) Accounting Policy Changes

7 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-Q

Item 2. Management’s Discussion and Analysis