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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-10 · 281 added, 205 removed, 65 unchanged (88% of the section changed)

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

The Company’s Form 10-K Annual Report for the year ended December 31, 2023 provided a detailed description of products, technologies, markets, regulatory issues, business initiatives, resources and business risks, among other details, and should be read in conjunction with this report.

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

The Company’s Form 10-K Annual Report for the year ended December 31, 2023 provides a detailed description of products, technologies, markets, regulatory issues, business initiatives, resources and business risks, among other details, and should be read in conjunction with this report.

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

Currency amounts in the report are in thousands, except per share amounts or where otherwise noted.

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£ or GBP = UK Pound Sterling;

C$ or CAD = Canadian Dollars;

CAD = Canadian Dollars;

and € or EUR = Euros.

Analysis of Results of Operations

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

Income statement results in second calendar quarter (2Q) and first half (1H) 2024 compared to the same periods of 2023 were as follows:

Operating Income

Income Before Tax

Earnings per Share (diluted)

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

Net Income (US GAAP)

Earnings per Diluted Share

Total consolidated 2Q 2024 revenues were $2,466 (19.2%) lower than in 2Q 2023, with 1H 2024 revenues $3,646 (14.4%) lower than in 1H 2023.

The decline in sales in three categories explain more than the total consolidated sales decline.

WW in the table below = “worldwide”

Revenue Category

Portion of 2Q Lower Total UTMD Sales

Portion of 1H Lower Total UTMD Sales

WW PendoTECH OEM

China BPM Distributor

WW Filshie Clip System

In other words, aggregated consolidated sales in all other sales categories were higher when comparing 2024 to 2023 in both periods.

Despite the significantly lower sales, UTMD achieved profit margins in all income categories similar to those of the prior year’s same periods:

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:

Income Before Tax Margin (Income B4 Tax/ sales):

Net Income Margin (Net Income/ sales):

The percentage decline in 2Q consolidated revenues was greater than for 1H primarily because the period-to-period decline in UTMD sales to its previously major biopharmaceutical OEM customer increased from $1,046 in 1Q 2024 to $1,732 in 2Q 2024.

UTMD now expects a similar magnitude of decline in the last two quarters of the year as occurred in 2Q 2024, resulting in $6 million lower sales to this OEM customer for the 2024 year as a whole compared to 2023.

UTMD was able to achieve the same GP margin in 2Q 2024 as in 2Q 2023 despite 19% lower sales after making timely reductions in manufacturing expenses.

The Company believes that the reductions were made without sacrificing critical resources needed for longer term growth.

Operating Income declined more than Gross Profit due to $689 higher 1H 2024 U.S.

litigation costs which are included in Operating Expense per US GAAP.

Higher non-operating income brought the decline in Income Before Tax to be in line with the decline in sales.

A lower estimated income tax provision rate mitigated the decline in Net Income, and share repurchases during 1H 2024 helped further reduce the decline in Earnings Per Share relative to the sales decline.

UTMD’s June 30, 2024 Balance Sheet continued strong, with no debt.

Ending Cash and Investments were $89.2 million on June 30, 2024 compared to $92.9 million on December 31, 2023.

The June 30, 2024 cash balance resulted after paying $2.2 million in cash dividends to stockholders, repurchasing $9.4 million of its common stock, increasing non-cash working capital by $0.5 million (including reducing current liabilities by $0.8 million) and making $0.1 million in capital expenditures during 1H 2024.

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 2Q 2024 compared to the end of calendar year 2023 and the end of 2Q 2023 were

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

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.

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

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

UTMD also has standard T&C of Sale for OEM customers, other medical device and non-medical device customers for components manufactured by UTMD, which are substantially the same, except that prices are generally quoted prior to acceptance of each order.

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

Pricing agreements which are documented arrangements with clinical facilities, or groups of affiliated facilities or OEM customers, 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.

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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 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:

For the sake of clarity, the separate pricing agreements 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.

2Q 2024 Sales

Total consolidated 2Q 2024 UTMD worldwide (WW) sales in USD terms were $2,466 (19.2%) lower than in 2Q 2023.

Consistent with the projection in UTMD’s SEC 10-K Report at the beginning of the year, sales of biopharma pressure monitoring devices and accessories to UTMD’s previously largest OEM customer, PendoTECH, invoiced by both the U.S.

and Ireland, were $1,732 (77.3%) lower in 2Q 2024 compared to 2Q 2023.

(There were no Ireland sales to PendoTech in 2Q 2024 compared to $608 in 2Q 2023.) New orders received from PendoTECH scheduled for the 2H 2024 have been minimal, resulting in a current backlog for WW PendoTECH shipments during the remainder of 2024 of approximately $450.

As WW PendoTECH shipments in 2H 2023 were $3,798, UTMD expects that, without any new orders, 3Q and 4Q 2024 shipments, consistent with 2Q 2024, will also each be about $1.7 million lower as in the same periods in 2023.

The timing of shipments to OUS distributors can cause significant fluctuations in quarterly comparisons since distributors order larger quantities at a time in order to minimize transit and other logistical costs.

The second major revenue decline category, which was also as projected in UTMD’s 2024 SEC 10-K Report, was due to shipments of blood pressure monitoring (BPM) kits from Ireland to UTMD’s largest BPM medical device distributor located in China.

This customer places annual fixed orders with UTMD.

In 2Q 2024, sales were $502 (39.3%) lower due to an extra shipment in 2Q 2023 compared to 2Q 2024.

Unlike 2Q 2024, 3Q 2024 shipments will not be lower than 3Q 2023 to this distributor, but 4Q 2024 shipments are scheduled to be $1.2 million lower.

With a high level of uncertainty, UTMD projected that it would be able to maintain Filshie Clip System device (Filshie) sales in 2024 similar to 2023.

Filshie sales were the third major category responsible for lower total sales.

WW consolidated Filshie sales in 2Q 2024 were $405 (12.8%) lower than in 2Q 2023.

Domestic Filshie sales were $165 (13.9%) lower, OUS direct sales were $149 (10.0%) lower and OUS distributor sales were $91 (19.1%) lower.

In sum, the 2Q 2024 decline in sales from the three categories above compared to 2Q 2023 was $2,639, which is obviously greater than the aggregate $2,466 decline in total consolidated sales.

In 2Q 2024 compared to 2Q 2023, outside the U.S.

(OUS) sales were $1,280 (21.9%) lower and U.S.

domestic sales were $1,186 (16.9%) lower.

The portion of OUS sales invoiced in foreign currencies in USD terms were 35% of total WW consolidated 2Q 2024 sales compared to 33% in 2Q 2023.

The net impact of changes in period-to-period foreign currency exchange (FX) rates was negligible.

The average USD FX rates reduced 2Q 2024 total consolidated sales $23 (0.2%) for sales invoiced in foreign currencies.

Actually, a stronger GBP by itself added $6.

The EUR, CAD and AUD were weaker.

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

The average FX rates from the applicable foreign currency to USD during 2Q 2024 and 2Q 2023 for revenue purposes follow:

The $23 weighted average unfavorable impact on 2Q 2024 foreign currency OUS sales was 0.6%.

In constant currency terms, foreign currency sales in 2Q 2024 were 21.5% lower than in 2Q 2023.

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

Total OUS sales in 2Q 2024 were $4,569 compared to $5,849 in 2Q 2023.

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 OUS 2Q 2024 sales in USD terms (including the impact of FX rate differences) were 8.3% higher in Ireland with the EUR FX rate down about 0.9%, 12.3% lower in Canada with the CAD FX rate down 1.9%, 13.1% higher in the UK with the GBP FX rate up 0.7%, 9.6% lower in Australia/New Zealand with the AUD FX rate down 1.6%, and 25.5% lower in France with the EUR FX rate down only 0.9%.

USD-denominated sales to OUS distributors were 30.7% lower in 2Q 2024 than in 2Q 2023 because Ireland sales to PendoTECH as well as sales to UTMD’s BPM device distributor in China are in this category.

Domestic U.S.

sales in 2Q 2024 were $5,831 compared to $7,017 in 2Q 2023.

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

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

UTMD separates domestic Filshie device sales from other medical device sales direct to medical facilities because UTMD is simply a distributor for Femcare in the U.S.

Direct non-Filshie device sales, representing 63% of total domestic sales, were about the same, just $8 (0.2%) lower in 2Q 2024 than in 2Q 2023.

Domestic OEM sales, representing 20% of total domestic sales, in total were $1,013 (47.0%) lower.

In this category, U.S.

PendoTECH sales were $1,124 lower.

Domestic Filshie device sales, representing 17% of total domestic sales, were $165 (13.9%) lower in 2Q 2024 compared to 2Q 2023.

1H 2024 Sales

Total consolidated 1H 2024 UTMD WW sales in USD terms were $3,646 (14.4%) lower than in 1H 2023.

and Ireland, were $2,788 (57.5%) lower in 1H 2024 compared to 1H 2023.

Ireland sales alone to PendoTech in 1H 2024 were $919 lower than in 1H 2023.

In 1H 2024, sales were $415 (20.7%) lower due to an extra shipment in 2Q 2023 compared to 2Q 2024.

With a high level of uncertainty, UTMD projected maintaining Filshie Clip System device (Filshie) sales in 2024 similar to 2023.

This was the third major category responsible for lower 1H sales.

WW consolidated Filshie sales in 1H 2024 were $918 (14.2%) lower than in 1H 2023.

Domestic Filshie sales were $362 (14.8%) lower, OUS direct sales were $266 (8.8%) lower and OUS distributor sales were $290 (29.0%) lower.

In sum, the 1H 2024 decline in sales from the three categories above compared to 1H 2023 was $4,111, which is obviously greater than the $3,646 decline in total consolidated sales.

In 1H 2024 compared to 1H 2023, OUS sales were $1,466 (13.1%) lower and U.S.

domestic sales were $2,180 (15.3%) lower.

Total OUS sales in 1H 2024 were $9,718 compared to $11,184 in 1H 2023.

The portion of OUS sales invoiced in foreign currencies in USD terms were 33% of total WW consolidated 1H 2024 sales compared to 31% in 1H 2023 because Ireland sales to PendoTECH were invoiced in USD.

The net impact of changes in period-to-period foreign currency exchange (FX) rates was negligible.

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

The average FX rates from the applicable foreign currency to USD during 1H 2024 and 1H 2023 for revenue purposes follow:

The weighted-average FX rate positive impact on 1H 2024 foreign currency OUS sales was 0.2%.

In constant currency terms, foreign currency sales in 1H 2024 were 8.3% lower than in 1H 2023.

In constant currency terms, 1H 2024 total OUS sales were 13.3% lower than in 1H 2023.

Direct to end-user OUS 1H 2024 sales in USD terms (including the impact of FX rate differences) were 20% higher in Ireland with the EUR FX rate about the same, 10% lower in Canada with the CAD FX rate down 1%, 8% higher in the UK with the GBP FX rate 3% higher, 17% lower in Australia/New Zealand with the AUD FX rate down 3%, and 20% lower in France with the EUR FX rate about the same as in 1H 2023.

USD-denominated sales to OUS distributors (excluding PendoTECH) were 7% lower in 1H 2024 than in 1H 2023.

Domestic U.S.

sales in 1H 2024 were $12,023 compared to $14,202 in 1H 2023.

Direct non-Filshie device sales, representing 60% of total domestic sales, were $114 (1.6%) lower in 1H 2024 than in 1H 2023.

Domestic OEM sales, representing 23% of total domestic sales, were $1,704 (38.2%) lower.

In this category, since U.S.

PendoTECH sales were $1,860 lower, other U.S.

OEM sales were obviously $156 higher.

Domestic Filshie device sales, representing 17% of total domestic sales, were $362 (14.8%) lower in 1H 2024 compared to 1H 2023.

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

Global revenues by product category :

Gynecology/ Electrosurgery/ Urology

Blood Pressure Monitoring and Accessories*

OUS revenues (USD) by product category:

OUS revenues by product category :

Gynecology/ Electrosurgery/ Urology

Blood Pressure Monitoring and Accessories*

*includes molded components sold to OEM customers.

* includes assemblies and molded components sold to OEM customers.

In view of lack of orders from its previous largest OEM customer and ongoing weakness in Filshie device sales, UTMD now projects 2024 sales for the year as a whole are likely to be 20-22% lower than in 2023.

c) Gross Profit

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.

Gross Profit results from subtracting the cost of goods sold (CGS), comprised of costs of production, manufacturing engineering, depreciation of equipment, maintenance and repairs, quality assurance including regulatory compliance, and purchasing materials including freight for receiving materials from suppliers, from revenues.

CGS is divided into three categories:

direct labor, raw materials and manufacturing overhead (MOH).

Direct labor and raw materials are predominantly variable costs, i.e.

vary directly with revenues.

MOH contains predominantly fixed costs relative to the Company’s infrastructure, for example, supervision and engineering personnel.

UTMD’s 2Q 2024 Gross Profit was $1,486 (19.2%) lower than in 2Q 2023, the same decline as in sales, due to being able to achieve the same Gross Profit Margin (GP divided by sales, GPM).

Gross Profit in 1H 2024 was $2,563 (16.4%) lower than in 1H 2023 with sales 14.4% lower, as UTMD’s 1Q 2024 GPM was diluted from manufacturing overhead expenses which had not yet been reduced in proportion to sales.

The 1H 2024 GPM was 59.9% compared to 61.4% in 1H 2023.

UTMD’s 2024 GPMs were consistent with UTMD’s long-term profitability goals.

With lower sales and consequent lower absorption of fixed MOH costs, a higher than expected 2Q 2024 average GPM was achieved through several means;

1) a favorable product sales mix, i.e.

lower sales to UTMD’s China distributor at UTMD’s lowest GPM, 2) a direct labor productivity improvement as the least experienced production workers were furloughed, 3) reduction of some production supervision and management, 4) relief in marginal costs of some raw materials, 5) substantially lower incoming freight costs from raw material vendors, and 6) a reduction in intercompany finished goods inventory which freed up reserved gross profit.

d) Operating Income

Operating Income results from subtracting Operating Expenses from Gross Profit.

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:

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

Operating Income in 2Q 2024 of $3,438 was $987 (22.3%) lower compared to 2Q 2023 Operating Income of $4,425.

The lower Operating Income was the result of $1,486 lower Gross Profit offset in part by $499 lower Operating Expense, as explained below.

UTMD’s 2Q 2024 Operating Income Margin (Operating Income as a percentage of sales) remained a healthy 33.1%.

Operating Income in 1H 2024 was $7,321 compared to $8,864 in 1H 2023, a decrease of $1,542 (17.4%), but still achieving a healthy 1H 2024 Operating Income Margin of 33.7%.

The lower Operating Income was the result of $2,563 lower Gross Profit offset in part by $1,020 lower Operating Expense, as explained below.

The following table summarizes Operating Expenses in 2Q and 1H 2024 compared to the same periods in 2023 by Operating Expense (OE) category:

S&M Operating Expenses were $141 and $165 higher in 2Q 2024 and 1H 2024 compared to the same periods in 2023 respectively.

UTMD in the U.S.

is self-insured for its employee health plan.

One employee’s 2Q medical claim that did not occur in the prior year explains about $100 of the difference in both periods.

An earlier timing of trade shows in 2Q than in the prior year together with higher travel expenses explains about another $20 of the 2Q and 1H 2024 differences to same periods in 2023.

The remaining differences are primarily due to higher salaries for existing S&M employees in 2024 compared to 2023 worldwide.

The impact of differences in FX rates on foreign subsidiary S&M expenses was insignificant (see below).

Because of lower sales in addition to the higher expenses, S&M expenses as a percentage of sales increased to 5.3% in 2Q 2024 from 3.2% in 2Q 2023, and to 4.4% of sales in 1H 2024 from 3.1% in 1H 2023.

G&A expenses dominate UTMD’s Operating Expenses, largely because of non-cash expenses from the amortization of Identifiable Intangible Assets (IIA) associated with the Filshie Clip System and the expenses of current product liability litigation in the U.S.

A segmentation of USD-denominated G&A expenses follows:

G&A OE Category

IIA Amort– UK:

IIA Amort– CSI:

Total G&A OE:

Total consolidated G&A Operating Expenses in 2Q 2024 were $761 lower, and in 1H 2024 were $1,429 lower than in the same periods in 2023.

The amortization of IIA associated with UTMD’s purchase of CooperSurgical Inc’s exclusive U.S.

distribution and use of intellectual property rights in 2019 was fully amortized in late 2023.

In the 1H of 2024, this reduced G&A Operating Expense by $1,105 per calendar quarter compared to 2023.

Offsetting that significant G&A expense reduction was an increase in U.S.

litigation expenses related to the Filshie Clip System of $355 in 2Q 2024 compared to 2Q 2023, and $689 in 1H 2024 compared to 1H 2023.

The remaining IIA amortization expense in the UK resulted from the 2011 acquisition of Femcare.

This expense only varied as a result of the change in the GBP FX rate, as the amortization expense in GBP was the same in both periods.

All other G&A expenses in the aggregate were similar in both periods.

The differences in period-to-period R&D expenses were due to extensive outside material validation studies in 2024 required by biopharmaceutical industry manufacturers for devices used in their manufacturing processes.

Since all R&D in 2024 was carried out in the U.S., there was no FX rate impact.

The impact of differing FX rates in 2024 and 2023 on Operating Expenses expressed in USD was negligible.

The EUR, AUD and CAD were all slightly weaker, but an average stronger GBP helped increase foreign currency Operating Expense when converted to USD by a net $2 in 2Q 2024 and $30 in 1H 2024.

The following table summarizes “constant currency” Operating Expense in 2Q and 1H 2024 compared to the same periods in 2023 by Operating Expense category:

2Q 2024 const FX

1H 2024 const FX

e) Non-operating expense/ Non-operating income

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.

Non-operating expense includes bank fees and expenses from losses, if applicable, from remeasuring the value of EUR cash bank balances in the UK, and GBP cash balances in Ireland, in USD terms.

Non-operating income includes 1) income from rent of underutilized property, 2) investment income (interest on cash balances), 3) royalties received from licensing the Company’s technology, and 4) income from gains, if applicable, from remeasuring the value of EUR cash bank balances in the UK, and GBP cash balances in Ireland, in USD terms.

Non-operating income or expense can also include gains or losses from the disposition of assets from time to time.

Starting in 2024 for UTMD, there is an additional excise tax included in non-operating expenses:

a stock repurchase excise tax included in the so-called “Inflation Reduction Act of 2022”.

Although the new 1% tax on the aggregate fair market value of share repurchases made in 2023 applies, UTMD did not repurchase shares in 2023.

After the U.S.

Treasury and IRS announced regulations governing the stock repurchase excise tax in 2Q 2024, UTMD began reporting the stock repurchase excise tax in its 2Q 2024 non-operating expenses based on $9,393 in share repurchases made during 1H 2024.

Net non-operating income is non-operating income minus non-operating expense during a particular time period.

Net non-operating income in 2Q 2024 was $773 compared to $747 in 2Q 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.

Net non-operating income in 1H 2024 was $1,688 compared to $1,427 in 1H 2023.

Non-operating income in 2Q 2024 was reduced by a new $94 excise tax on share repurchases made in 2024.

In 1H 2024 compared to 1H 2023, UTMD Ltd in Ireland received EUR 98 less rental income on its underutilized property.

Remeasured foreign currency balances generated about $8 more in net non-operating income in 1H 2024 compared to 1H 2023.

With higher cash balances in 2024, UTMD received approximately $345 more in 1H interest income compared to 1H 2023.

f) Income Before Income Taxes (EBT)

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

Consolidated EBT results from adding net non-operating income to Operating Income.

Consolidated 2Q 2024 EBT was $4,211 (40.5% of sales) compared to $5,172 (40.2% of sales) in 2Q 2023.

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 $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.

Consolidated 1H 2024 EBT was $9,010 (41.4% of sales) compared to $10,291 (40.5% of sales) in 1H 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, 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.

Management believes that this operating performance metric provides meaningful supplemental information to both management and investors and confirms UTMD’s ongoing excellent financial operating performance, as well as its ability to sustain performance during a challenging economic time.

Excluding the noncash effects of depreciation, amortization of intangible assets and stock option expense, 2Q 2024 consolidated EBT excluding the remeasured bank balance currency gain or loss (“adjusted consolidated EBITDA”) was $4,942 (47.5% of sales) compared to $6,996 (54.4% of sales) in 2Q 2023.

Adjusted consolidated EBITDA at $10,489 (48.3% of sales) in 1H 2024 was 24.6% lower than the $13,916 (54.8% of sales) in 1H 2023.

Approximately 75% of the lower EBITDA was due to lower GP.

The rest was due primarily to higher litigation expenses and no CSI IIA amortization expense.

Adjusted consolidated trailing twelve months’ (TTM) EBITDA was $23,208 as of June 30, 2024.

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 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.

Net Income is EBT minus a provision for income taxes.

Net Income in 2Q 2024 of $3,453 (33.2% of sales) was 17.8% lower than the Net Income of $4,200 (32.6% of sales) in 2Q 2023.

The $747 lower 2Q Net Income was due to $987 lower Operating Income combined with $27 higher net non-operating income, and a slightly lower average income tax provision rate.

The average consolidated income tax provision rate (as a % of the applicable period EBT) in 2Q 2024 was 18.0% compared to 18.8% in 2Q 2023.

Net Income in 1H 2024 of $7,409 (34.1% of sales) was 11.9% lower than the Net Income of $8,414 (33.1% of sales) in 1H 2023.

The $1,005 lower 1H Net Income was due to $1,542 lower Operating Income combined with $261 higher net non-operating income, and a lower average income tax provision rate.

The average consolidated income tax provision rate (as a % of the applicable period EBT) in 1H 2024 was 17.8% compared to 18.2% in 1H 2023.

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.

Except for the UK, in which the corporate income tax rate changed to 25% from 19% on April 1, 2023, the basic corporate income tax rates in each of the sovereignties were the same as in the prior year.

h) Earnings Per Share (EPS)

EPS are consolidated Net Income divided by the 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.

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 2Q 2024 were $0.978 compared to diluted EPS of $1.154 in 2Q 2023, a 15.3% decrease.

Diluted EPS in 1H 2024 were $2.070 compared to diluted EPS of $2.313 in 1H 2023, a 10.5% decrease.

The decreases in EPS were lower than the decreases in Net Income as a result of fewer diluted shares.

Diluted shares were 3,531,572 in 2Q 2024 compared to 3,638,566 in 2Q 2023.

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.

Diluted shares were 3,579,435 in 1H 2024 compared to 3,637,715 in 1H 2023.

The lower diluted shares in both periods of 2024 were the result of shares repurchased during 1H 2024, offset by employee options exercised and a dilution factor for unexercised options just in 2023.

Because the average exercise price of employee options was higher than the ending market price of the stock in 2Q 2024, the number of shares added as a dilution factor in 2Q 2024 was zero compared to 10,288 in 2Q 2023.

For the same reason, the number of shares added as a dilution factor in 1H 2024 was zero compared to 9,660 in 1H 2023.

The number of shares used for calculating EPS in both years was higher than period-ending outstanding shares because of a time-weighted calculation of average outstanding shares, plus dilution in 2023 from unexercised employee options.

Outstanding shares at the end of 2Q 2024 were 3,498,902 compared to 3,629,525 at the end of calendar year 2023.

The difference was due to 7,592 shares added from employee option exercises during 1H 2024 and 138,215 shares subtracted from repurchases in 1H 2024.

Share repurchases in 2Q 2024 were 95,107 shares at an average price of $67.33.

Share repurchases in 1H 2024 were 138,215, as stated above, at an average price of $67.96.

The total cost of repurchasing shares in 1H 2024 was $9,393,466.

For comparison, outstanding shares were 3,628,988 at the end of 2Q 2023.

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

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.

The total number of outstanding unexercised employee and outside director options at June 30, 2024 was 73,497 at an average exercise price of $77.01, including shares awarded but not yet vested.

This compares to 66,025 unexercised option shares at the end of 2Q 2023 at an average exercise price of $73.78/ share, including shares awarded but not vested.

No employee options have been awarded in 2024.

Non-qualified option awards totaling 19,000 shares were made to 48 employees in October 2023 at an exercise price of $77.07.

i) Return on Equity (ROE)

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

Annualized ROE (before stockholder dividends) in 1Q 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.

ROE is the portion of Net Income retained by UTMD to internally finance its growth, pay dividends and make share repurchases divided by the average accumulated stockholders’ equity for the applicable time period.

Annualized ROE in 1H 2024 (before stockholder dividends and share repurchases) was 12% compared to 14% 1H 2023.

The lower 2024 ROE was due to the double-whammy effect of a 12% decline in the numerator (Net Income) with a 7% increase in the denominator (average stockholders’ equity).

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

The increase in average stockholders’ equity was after reductions due to paying cash dividends to stockholders and repurchasing shares.

UTMD paid $1,081 ($0.300/share) in dividends to stockholders in 2Q 2024 compared to $1,070 ($0.295/ share) paid in 2Q 2023.

The dividends paid to stockholders during 2Q 2024 were 31% of Net Income.

UTMD paid $2,170 ($0.300/share) in dividends to stockholders in 1H 2024 compared to $2,140 ($0.295/ share) paid in 1H 2023.

The dividends paid to stockholders during 1H 2024 were 29% of Net Income.

UTMD’s closing share price at the end of 2Q 2024 was $66.81, down 6.0% from the closing price of $71.11 three months earlier at the end of 1Q 2024, and down 20.7% from the closing price of $84.22 at the end of 2023.

The closing share price one year ago at the end of 2Q 2023 was $93.20.

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 $5,276 in 1Q 2024 compared to $6,915 in 1Q 2023.

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:

The $3,790 lower increase in cash provided by operating activities included a $1,005 lower Net Income in 1H 2024 along with a use of cash to increase trade accounts receivable by $351 instead of a $2,017 decrease in the prior year, and a $2,184 lower increase in amortization expense compared to 1H 2023.

Those lower contributions to or use of cash were partially offset by a $441 cash provided by lower inventories compared to a $1,245 increase in inventories in the prior year.

Capital expenditures for property and equipment (PP&E) were $132 in 1H 2024 compared to $363 in 1H 2023.

The amount spent in 1H 2024 was $195 less than depreciation expense in contrast to the prior year when capital expenditures exceeded depreciation as UTMD invested in new equipment and tooling to increase its manufacturing capabilities for biopharmaceutical manufacturing control sensors.

Depreciation of PP&E was $327 in 1H 2024 compared to $310 in 1H 2023.

Future depreciation expense will increase as new equipment is placed in service.

UTMD made cash dividend payments to stockholders of $2,170 in 1H 2024 compared to $2,140 in 1H 2023.

The difference was due to 1.7% higher dividends per share than in the previous year, offset by share repurchases.

In 1H 2024, UTMD received $390 and issued 7,592 shares of its stock upon the exercise of employee stock options.

Option exercises in 1H 2024 were at an average price of $51.39 per share.

In comparison, in 1H 2023, UTMD received $81 and issued 1,221 shares of its stock upon the exercise of employee stock options.

Option exercises in 1H 2023 were at an average price of $66.52 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 intends to 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

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.

At June 30, 2024 compared to the end of 2023, UTMD’s cash and investments decreased $3,650 to $89,219 primarily as a result of using $11,563 in cash repurchasing UTMD stock and paying shareholder dividends, offset by 1H 2024 Net Income of $7,409.

The $504 additional difference in lower cash resulted primarily from $836 lower accrued liabilities.

At June 30, 2024, net Intangible Assets declined to 13.5% of total consolidated assets from 13.8% on December 31, 2023 despite total assets being 4% lower due to lower cash.

UTMD’s strong 26.0 current ratio at June 30, 2024 was higher than the 22.6 current ratio at December 31, 2023 despite 4% lower current assets as a result of a 25% decline in accrued liabilities.

The average age of trade receivables was 32 days from date of invoice at June 30, 2024 compared to 24 days at December 31, 2023 based on the most recent calendar quarter of sales.

Both numbers represent excellent receivables collection experience.

Average inventory turns declined to 1.8 in 2Q 2024 compared to 2.2 for the last quarter of 2023 due to the lower sales activity and despite a $525 reduction in consolidated inventories.

Both turn numbers which resulted in extra safety stocks of raw materials acquired following the pandemic are too low.

June 30, 2024 total consolidated assets were $130,032, a decrease of $5,425 from December 31, 2023.

Current assets were $3,947 lower than at December 31, 2023 because of the decrease in cash.

A $525 decrease in inventories was offset by a $278 increase in total receivables.

Net fixed assets (property, plant and equipment) in Utah decreased $160 as depreciation exceeded new acquisitions.

OUS subsidiary net fixed assets decreased $198 as depreciation exceeded new acquisitions and as a result of changes in FX rates for foreign currency-valued assets in Ireland, the UK, Australia and Canada.

For clarity, the net book value of consolidated property, plant and equipment decreased $358 at June 30, 2024 from the end of 2023 due to the net effect on OUS asset values of period-ending changed FX rates, $132 in new asset purchases minus $327 in depreciation.

June 30, 2024 net intangible assets (goodwill plus other intangible assets) declined $1,121 from the end of 2023 as a result of $1,023 in amortization and a weaker GBP/USD FX rate on UK intangible asset balances.

At June 30, 2024, net intangible assets including goodwill were 13% of total consolidated assets compared to 14% at year-end 2023 and 16% at June 30, 2023.

Working capital (current assets minus current liabilities) was $98,383 at June 30, 2024 compared to $101,559 at December 31, 2023.

Cash balances were 91% of the June 30, 2024 working capital.

Current assets at June 30, 2024 compared to December 31, 2023 were $3,947 lower as the result of the $3,650 decrease in cash combined with a $525 decrease in inventories, offset by a $278 increase in total receivables.

Current liabilities were $770 lower at June 30, 2024 compared to December 31, 2023 as the result of a $836 decrease in accrued liabilities and $66 higher accounts payable.

The lower accrued liabilities resulted mainly from a $387 lower employee profit-sharing bonus accrual at mid-year 2024 compared to the prior end-of-year 2023 accrual and $805 lower accrued income taxes.

Management believes that UTMD’s working capital remains more than sufficient to meet operating needs, new capital expenditures and projected cash dividend payments to stockholders.

June 30, 2024 total consolidated liabilities were $5,980, a decline of $1,165 from December 31, 2023.

Current liabilities were $770 lower than at December 31, 2023.

Long term liabilities were $394 lower, primarily as a result of the deferred tax liability balance resulting from non-tax deductible Femcare remaining IIA amortization expense being $260 lower.

The deferred tax liability balance for Femcare IIA ($9,084 on the date of the acquisition), was $860 at June 30, 2024 compared to $1,120 at December 31, 2023 and $1,370 at June 30, 2023.

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

as Femcare pays its taxes in the UK without the benefit of a deduction for IIA amortization expense.

UTMD’s total debt ratio (total liabilities/ total assets) at June 30, 2024 was 4.6%, at December 31, 2023 was 5.3%, and at June 30, 2023 was 6.7%.

l) Management's Outlook

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;

As outlined in its December 31, 2023 SEC 10-K report, UTMD’s plan for 2024 was to

1) exploit its 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;

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

The above 2024 plan remains the same, and management looks forward to bringing items 1) -4) to better fruition in 2H 2024.

Although revenues are now expected to be lower than projected at the beginning of the year, because of better-than-expected GPM performance, Operating Profit for the year should be consistent with the beginning-of-year projection in UTMD’s SEC 10-K report, assuming that ongoing litigation expenses remain consistent with 1H 2024.

EPS will benefit from share repurchases.

m) Accounting Policy Changes

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis