What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-09 · 273 added, 263 removed, 83 unchanged (87% of the section changed)

2 unchanged sentences

(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 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.

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.

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

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

AUD = Australia Dollars;

A$ or AUD = Australia Dollars;

£ or GBP = UK Pound Sterling;

CAD = Canadian Dollars;

C$ or CAD = Canadian Dollars;

and € or EUR = Euros.

Analysis of Results of Operations

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

Income statement results in 3Q and 9M 2024 compared to the same periods of 2023 were as follows:

Operating Income

Income Before Tax

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):

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.

Net Income (NI)

Earnings per Diluted Share (EPS)

Worldwide (WW) consolidated sales in 3Q 2024 were $2,500 lower than in 3Q 2023, and were $6,146 lower in 9M 2024 compared to 9M 2023.

WW sales to UTMD’s previous major OEM customer, PendoTECH, were $1,704 lower in 3Q 2024 than in 3Q 2023, and were $4,483 lower in 9M 2024 compared to 9M 2023 accounting for 73% of the lower year-to-date sales.

WW Filshie Clip System (Filshie) sales, which were not projected to be lower, were $193 lower in 3Q 2024 than in 3Q 2023, and were $1,110 lower in 9M 2024 compared to 9M 2023 accounting for 18% of the year-to-date sales decline.

In other words, those two sales categories combined represented 76% of the lower revenues in 3Q 2024, and 91% of the lower revenues in 9M 2024.

Sales invoiced in foreign currencies, which did not include PendoTECH biopharmaceutical OEM sales, represented 35% of total WW consolidated 3Q 2024 sales (when expressed in USD) and 33% of 9M 2024 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 $96 higher in 3Q 2024 as a result of a stronger EUR and GBP compared to 3Q 2023, and $113 higher for 9M 2024.

Profit margins in 3Q and 9M 2024 compared to 3Q and 9M 2023 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 3Q and 9M 2024, UTMD’s GP Margin (GPM) was hampered by planned higher manufacturing overhead costs with lower absorption as a result of lower sales.

Despite additional cost-of-living adjustments for production workers and continued “sticky inflation” in raw material costs, UTMD’s GPMs in 2024 have not declined as much as projected at the beginning of the year due to reductions in headcount, including management, not planned at the beginning of the year.

Compared to the prior year, OI Margins in 2024 benefited from the fact that the amortization of the $21 million identifiable intangible asset (IIA) associated with UTMD’s 2019 purchase of CooperSurgical Inc’s (CSI’s) exclusive right to distribute the Filshie Clip System in the U.S.

ended in October 2023.

In other words, there was $1,105 (8.8% of revenues) in 3Q 2023 operating expense and $3,316 (also 8.8% of revenues) in 9M 2023 operating expense that was zero in 2024.

On the other hand, UTMD’s OI Margin was diluted in 2024 by the fact that ongoing litigation expenses related to Filshie product liability claims were 4.26% of revenues in 3Q 2024 compared to 2.78% in 3Q 2023, and 5.71% of revenues in 9M 2024 compared to 2.74% in 9M 2023.

EBT and Net Income margins were enhanced by higher net non-operating income despite a new 1% excise tax on share repurchases (included as an offsetting non-operating expense) that occurred only in 2024 as no UTMD shares were repurchased in 2023.

Earnings Per Share (EPS) in 3Q 2024 were only 5% lower when revenues were 20% lower than in 3Q 2023, and in 9M 2024 EPS were only 9% lower when revenues were 16% lower than in 9M 2023.

EPS in 2024 were helped by share repurchases and a lower income tax provision rate compared to the prior year.

Additional income statement details are provided later in this report.

UTMD’s September 30, 2024 Balance Sheet continued to be about as strong as at the end of 2023 with a higher current ratio and lower total liabilities, despite lower sales and earnings, 9M 2024 cash payment of $3,222 in dividends to stockholders and use of $13,259 to repurchase shares.

The 3Q 2024 ending share price declined $17.31 (20.6%) from the end of 2023.

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

The FX rates from the applicable foreign currency to USD for assets and liabilities at the end of 3Q 2024 compared to the end of calendar year 2023 and the end of 3Q 2023 follow:

b) Revenues (sales)

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

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.

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.

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 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 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.

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 2024 sales were $2,500 (20.0%) lower than in 3Q 2023.

WW constant currency sales were $2,596 (20.8%) lower.

domestic sales were 21.7% lower (obviously without any FX impact), and outside the U.S.

(OUS) sales were 17.6% lower.

Without the benefit of a weaker USD in converting foreign currency sales, 3Q 2024 OUS sales were 19.4% lower.

Domestic U.S.

1 unchanged sentence

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.

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 66% of total domestic sales, were $345 (8.4%) lower in 3Q 2024 than in 3Q 2023.

Domestic OEM sales, representing 16% of total domestic sales, were $1,111 (54.7%) lower, with $1,222 lower U.S.

PendoTECH biopharmaceutical OEM sales.

Direct Filshie device sales, representing 18% of total domestic sales, were $122 (10.7%) lower in 3Q 2024 compared to 3Q 2023.

OUS sales in 3Q 2024 were 17.6% lower at $4,318 compared to $5,240 in 3Q 2023.

The decrease in USD-denominated OUS sales was mitigated as a result of a weaker USD relative to the EUR and GBP, which added $96 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 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.

The weighted-average FX rates from the applicable foreign currency to USD during 3Q 2024 and 3Q 2023 for revenue purposes follow:

The weighted average favorable FX rate difference impact on 3Q 2024 foreign currency OUS sales was 2.9%, increasing reported USD sales by $96 relative to the same foreign currency sales in 3Q 2023.

In constant currency terms, foreign currency sales in 3Q 2024 were 7.3% higher than in 3Q 2023.

The portion of OUS sales invoiced in foreign currencies in USD terms were 34.5% of total consolidated 3Q 2024 sales compared to 25.0% in 3Q 2023.

Export sales from the U.S.

to OUS distributors are invoiced in USD.

Direct to end-user foreign currency OUS 3Q 2024 sales in USD terms were 4.2% higher in Ireland, 10.8% lower in Canada, 6.2% lower in France, 20.3% lower in AUS/NZ and 0.6% higher in the UK than in 3Q 2023.

Sales to OUS distributors excluding PendoTECH were 11.6% lower in 3Q 2024 than in 3Q 2023.

Total consolidated 9M 2024 UTMD WW consolidated sales were $6,146 (16.2%) lower than in 9M 2023.

Constant currency 9M 2024 sales were helped $113 (+0.4%) due to a generally weaker USD year-to-date.

domestic sales were 17.5% lower and OUS sales were 14.5% lower.

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.

sales in 9M 2024 were $17,709 compared to $21,467 in 9M 2023.

Direct other device sales, representing 62% of total domestic sales, were $459 (4.0%) lower in 9M 2024 than in 9M 2023.

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

Domestic OEM sales, representing 21% of total domestic sales, were $2,815 (43.3%) 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:

The PendoTECH biopharmaceutical portion of domestic OEM sales were $3,083 (61.7%) lower.

In other words, 9M 2024 non-PendoTECH OEM sales were $265 higher.

Direct domestic Filshie device sales, representing 17% of total domestic sales, were $483 (13.5%) lower in 9M 2024 compared to 9M 2023.

UTMD’s beginning-of-year projections assumed that U.S.

Filshie device sales would not be lower in 2024.

OUS sales in 9M 2024 were 14.5% lower at $14,036 compared to $16,424 in 9M 2023.

The decrease in 9M 2024 USD-denominated OUS sales was mitigated as a result of a weaker USD relative to the GBP and EUR which added a net $113 to OUS sales (constant currency terms) after the offsetting negative impact of a weaker AUD and CAD.

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

The weighted-average FX rates from the applicable foreign currency to USD during 9M 2024 and 9M 2023 for revenue purposes follow:

The weighted-average favorable impact on 9M 2024 WW consolidated sales was 0.4%, increasing reported USD sales by $113 compared to using the same foreign currency exchange rates as in 9M 2023.

In constant currency terms, OUS sales in 9M 2024 were 15.2% lower than in 9M 2023.

The portion of OUS sales invoiced in foreign currencies in USD terms was 33.5% of total consolidated 9M 2024 sales compared to 28.8% in 9M 2023.

Direct to end-user foreign currency OUS 9M 2024 sales in USD terms were 15.2% higher in Ireland, 10.0% lower in Canada, 16.8% lower in France, 5.7% higher in the UK and 18.1% lower in AUS/NZ.

Sales to OUS distributors/OEM (excluding PendoTECH biopharmaceutical) customers were 8.5% lower in 9M 2024 than in 9M 2023.

Since shipments to OEM customers and OUS distributors typically have longer lead times, the current order backlog added to 9M 2024 sales results for those segments helps provide a fair estimate for 2024 sales as a whole, barring new raw material supply constraints.

Management now expects that WW PendoTECH biopharmaceutical OEM sales will be $6 million lower in 2024 than in 2023, representing less than 7% of 2024 total consolidated sales compared to 17% in 2023.

Along with the decline in Filshie Clip System sales, this suggests a total annual 2024 consolidated sales decline of 18% to 19% compared to 2023.

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 2024 compared to 3Q 2023, WW gynecology/ electrosurgery sales were 5% lower, WW neonatal device sales were 9% lower, WW labor & delivery device sales were 26% lower and WW blood pressure monitoring and related OEM product sales were 44% lower.

In 9M 2024 compared to 9M 2023, WW gynecology/ electrosurgery device sales were 5% lower, WW labor & delivery device sales were 12% lower, WW neonatal device sales were 3% lower and WW blood pressure monitoring and related OEM product sales were 38% lower.

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

Global revenues by product category :

Labor & Delivery

Gynecology/ Electrosurgery/ Urology

1 unchanged sentence

OUS revenues by product category :

Labor & Delivery

Gynecology/ Electrosurgery/ Urology

1 unchanged sentence

* 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 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.

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

UTMD’s Gross Profit was $1,557 (21.2%) lower in 3Q 2024 than in 3Q 2023, and $4,120 (18.0%) lower in 9M 2024 than in 9M 2023.

Despite the decline, this represented a better outcome than was projected at the beginning of the year.

Given the Company’s strategy of vertical integration in a complex medical device industry, the relatively fixed manufacturing overhead costs of retaining critical management, engineering and quality assurance capabilities dominates other more variable manufacturing costs of direct labor and materials.

During 3Q and 9M 2024, UTMD was able to make some overhead adjustments that were not projected at the beginning of the year which allowed Gross Profit Margins to not be significantly lower than in 2023.

d) Operating Income

Operating Income results from subtracting Operating Expenses from Gross Profit.

Operating Income in 3Q 2024 was $3,343 compared to $3,969 in 3Q 2023, a $626 (15.8%) decline;

and was $10,664 in 9M 2024 compared to $12,833 in 9M 2023, a $2,169 (16.9%) decline.

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

The following table summarizes Operating Expenses in 3Q and 9M 2024 compared to the same periods in 2023 by Operating Expense (OE) category:

The large G&A expense change which allowed UTMD’s Operating Expense ratio to be lower in 2024 were the noncash IIA amortization expenses of $1,105 in 3Q 2023 and $3,316 in 9M 2023 that did not recur in 2024 (i.e.

the CSI IIA had been fully amortized in 4Q 2023).

Changes in foreign currency exchange (FX) rates did not have a significant impact on OUS Operating Expense results in 9M 2024.

The FX rate changes are noted in the revenues sections above.

A stronger EUR, GBP and AUD in 3Q 2024 helped increase OUS S&M expense by $2 and OUS G&A expense by $21, of which $13 was from the same GBP amortization of Femcare IIA in 3Q 2024 and 2023.

A stronger EUR and GBP offset by a weaker AUD and CAD in 9M 2024, increased OUS S&M expenses by $2 and OUS G&A expenses by $51, of which $37 was from the same GBP amortization of Femcare IIA in both 9M 2024 and 9M 2023.

There were no OUS R&D expenses.

S&M expenses in 3Q 2024 were up $20 mainly as a result of salary increases, but also some additional sales personnel resources in Australia.

S&M expenses in 9M 2024 were $186 higher as a result of a 2Q 2024 $100 medical expense in UTMD’s U.S.

self-insured health care plan, $78 higher salaries and consulting fees, and $8 higher trade show costs.

UTMD did not reduce S&M personnel in 9M 2024.

R&D expenses were higher in both periods primarily from testing and qualification of UTMD’s own-branded biopharmaceutical process high-pressure monitoring devices, which it has not yet begun to market.

A division of G&A expenses by location follows.

G&A expenses include non-cash expenses from the amortization of IIA associated with the Filshie Clip System, which is also itemized below:

G&A Expense 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

Although the UK IIA amortization expense in GBP currency was the same as in the prior year’s same periods, the 3Q 2024 Operating Income margin was diluted by 1.2 percentage points, and the 9M 2024 Operating Income margin was diluted by 0.9 percentage points, due to lower sales and the GBP FX rate difference.

But total non-cash IIA amortization expense was just 5% of revenues in both 3Q and 9M 2024 compared to 13% of revenues in both 3Q 2023 and 9M 2023 due to the completion of CSI IIA amortization in 2023.

Litigation expenses for Filshie product claims in the U.S.

were higher and sales were lower in both 3Q 2024 and 9M 2024 relative to the same periods in 2023, which resulted in diluting UTMD’s Operating Income margins by 1.6 percentage points in 3Q 2024 and by 3.1 percentage points in 9M 2024.

OUS G&A expenses in USD terms were $857 ($836 in constant currency) in 3Q 2024 compared to $818 in 3Q 2023.

UK IIA amortization expense accounted for $13 of the total $21 increase due to FX rate changes.

OUS G&A expenses were $2,540 ($2,489 in constant currency) in 9M 2024 compared to $2,416 in 9M 2023.

UK IIA amortization expense accounted for $37 of the total $51 increase due to FX rate changes.

In 3Q 2024 compared to 3Q 2023, the $23 higher Other-UK (non-litigation or IIA amortization expenses) G&A expenses were essentially due to period-to-period FX rate changes converting GBP expenses to USD, as well as FX transaction losses from the timing of actual collection to when shipments were invoiced.

In 9M 2024 compared to 9M 2023, the $46 higher Other-UK (non-litigation or IIA amortization expenses) G&A expenses were essentially due to the same FX rate issues, and, in addition, to higher salaries and property taxes.

In summary, although Consolidated Revenues (the denominator) and Operating Profit (the numerator) were substantially lower in 2024 time periods compared to 2023 time periods, the Operating Income margin in 3Q 2024 was substantially higher than in 3Q 2023, and the Operating Income margins in 9M 2024 and 2023 were practically the same.

As noted above, UTMD’s total Operating Expenses as a percentage of sales were 24.6% and 27.1% in 3Q 2024 and 3Q 2023 respectively, and 25.7% and 26.7% of sales in 9M 2024 and 9M 2023 respectively.

This yielded an Operating Income margin in 3Q 2024 of 33.4% of sales compared to 31.7% of sales in 3Q 2023;

and 33.6% of sales in 9M 2024 compared to 33.9% of sales in 9M 2023.

The primary differences in period-to-period margins can be segmented in terms of percentage-point changes to UTMD’s Operating Income margin as follows:

Expense Category

3Q Pct-Point Margin Change

9M Pct-Point Margin Change

Gross Profit:

Litigation Expense (G&A)

IIA Amortization Expense – CSI (G&A)

IIA Amortization Expense – Femcare (G&A)

All Other Operating Expenses

Pct-Point Change in Operating Income margin:

“All Other Operating Expenses” in the table above includes all consolidated S&M expenses, all R&D expenses and all other consolidated G&A expenses excluding IIA amortization and U.S.

Fishie litigation expense.

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 13.5 years of amortization, the Femcare UK IIA remaining balance is £2,326 as of the end of 3Q 2024.

The Femcare IIA amortization will be complete in March 2026.

For both 3Q 2024 and 3Q 2023 in GBP terms, the IIA amortization expenses were £397.

For both 9M 2024 and 9M 2023, 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 was $1,105/ calendar quarter over the remaining 4.75 years of the prior distribution agreement at the time of acquisition.

The CSI IIA was fully amortized in 4Q 2023, yielding a substantial comparative Operating Income benefit in 2024.

e) Non-operating expense/ Non-operating 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.

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.

Net Non-operating income in 3Q 2024 was $836 compared to $811 in 3Q 2023.

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.

Net Non-operating income in 9M 2024 was $2,524 compared to $2,239 in 9M 2023.

UTMD realized a $3 remeasured currency balance gain in 9M 2024 compared to a $7 remeasured currency balance loss in 9M 2023.

In 9M 2024, despite $16,481 use of cash for dividends and share repurchases, UTMD received $583 more in WW interest income.

However, a new excise tax in the U.S.

imposed on share repurchases reduced NOI in 9M 2024 by $133.

There were no share repurchases in 9M 2023, so no 2023 excise tax.

Also, Non-operating income generated in Ireland from renting unused warehouse space to a third party was about $170 less in 9M 2024 compared to 9M 2023.

f) Income Before Income Taxes (EBT)

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

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

Consolidated 3Q 2024 EBT was $4,179 (41.8% of sales) compared to $4,781 (38.2% of sales) in 3Q 2023.

Consolidated 1H 2024 EBT was $9,010 (41.4% of sales) compared to $10,291 (40.5% of sales) in 1H 2023.

Consolidated 9M 2024 EBT was $13,188 (41.5% of sales) compared to $15,072 (39.8% of sales) in 9M 2023.

The smaller EBT decline relative to Operating Income was due to higher net Non-operating income in both periods.

The EBT of Utah Medical Products, Inc.

was $10,597 in 9M 2024 compared to $7,955 in 9M 2023.

The EBT of Utah Medical Products, Ltd (Ireland) was EUR 5,258 in 9M 2024 compared to EUR 6,279 in 9M 2023.

The US GAAP EBT of Femcare Group Ltd (Femcare Ltd., UK and Femcare Australia Pty Ltd) was GBP (2,562) in 9M 2024 compared to GBP (53) in 9M 2023.

The EBT of Utah Medical Products Canada, Inc.

(dba Femcare Canada) was CAD 222 in 9M 2024 compared to CAD 474 in 9M 2023.

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

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.

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.

Excluding the noncash effects of depreciation, amortization of intangible assets and stock option expense, 3Q 2024 consolidated EBT excluding the remeasured bank balance currency gain or loss and interest expense (“adjusted consolidated EBITDA”) was $4,958 compared to $6,604 in 3Q 2023.

Adjusted consolidated EBITDA was $15,447 in 9M 2024 compared to $20,520 in 9M 2023.

Adjusted consolidated EBITDA for the previous four calendar quarters (TTM) was $21,562 as of September 30, 2024.

At this point, adjusted consolidated EBITDA for 2024 calendar year as a whole is expected to be in the range of $19 to $20 million.

UTMD’s adjusted consolidated EBITDA as a percentage of sales was 49.6% in 3Q 2024 compared to 52.8% in 3Q 2023.

UTMD’s adjusted consolidated EBITDA as a percentage of sales was 48.7% in 9M 2024 compared to 54.2% in 9M 2023.

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:

9 unchanged sentences

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.

Net Income in 3Q 2024 of $3,563 (35.6% of sales) was 9.4% lower than Net Income of $3,935 (31.5% of sales) in 3Q 2023.

Net Income in 9M 2024 of $10,972 (34.6% of sales) was 11.1% lower than Net Income of $12,349 (32.6% of sales) in 9M 2023.

The average consolidated income tax provisions (as a % of the same period EBT) in 3Q 2024 and 3Q 2023 were 14.7% and 17.7% respectively, and were 16.8% and 18.1% in 9M 2024 and 9M 2023 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.

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.

In addition, a portion of UTMD’s Non-operating income generated from interest on high grade tax-exempt municipal bonds helped reduce the overall income tax provision rate in both periods.

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.

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 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 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 2024 were $1.025 compared to $1.081 in 3Q 2023, a 5.2% decrease.

Diluted EPS in 9M 2024 were $3.098 compared to diluted EPS of $3.394 in 9M 2023, an 8.7% decrease.

Diluted shares were 3,477,797 in 3Q 2024 compared to 3,638,723 in 3Q 2023.

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.

The lower diluted shares in 3Q 2024 were the result of share repurchases.

The number of shares used for calculating 3Q 2024 EPS was higher than September 30, 2024 actual outstanding shares because of a time-weighted calculation of average outstanding shares.

There was no dilution from unexercised employee and director options.

Outstanding shares at the end of 3Q 2024 were 3,440,525 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.

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.

The difference was due to 7,592 shares in employee option exercises during 1H 2024 minus 196,592 shares repurchased in 9M 2024.

There were no option exercises in 3Q 2024.

For further comparison, actual outstanding shares one year ago at the end of 3Q 2023 were also 3,629,525.

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

This compares to 65,301 unexercised option shares at the end of 3Q 2023 at an average exercise price of $73.83/ share, including shares awarded but not vested.

No employee options have been awarded in 2024.

Because the average exercise price of employee options was higher than the ending market price of the stock in 3Q 2024, the number of dilution shares added as a dilution factor for both 3Q 2024 and 9M 2024 was zero.

The number of shares added as a dilution factor for 3Q 2023 was 9,309.

The number of shares added as a dilution factor for 9M 2023 was 9,918.

No employee or director 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, 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 $1,052 ($0.300/share) in dividends to stockholders in 3Q 2024 compared to $1,071 ($0.295/ share) paid in 3Q 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.

Dividends paid to stockholders during 3Q 2024 were 30% of 3Q 2024 NI.

UTMD paid $3,222 ($0.300/share) in dividends to stockholders in 9M 2024 compared to $3,211 ($0.295/ share) paid in 9M 2023.

Dividends paid to stockholders during 9M 2024 were 29% of 9M 2024 NI.

In 3Q 2024, UTMD repurchased 58,377 of its shares for $3,866, at an average cost of $66.22/ share.

Total shares repurchased in 9M 2024 were 196,592 for $13,259, at an average cost of $67.45/ share.

The shares repurchased in 9M 2024 represented about 5.4% of shares outstanding at the end of 2023.

No UTMD shares were purchased in the open market in 2023.

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

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 2024 was 8% compared to annualized ROE of 10% in 9M 2023.

Before the payment of dividends, annualized ROE in 9M 2024 was 12% compared to 14% in 9M 2023.

The lower ROE in 9M 2024 was due to a 6% increase in average accumulated stockholders’ equity (despite $13,259 in 9M 2024 share repurchases which reduce stockholders’ equity) divided into Net Income that was 11% lower than in 9M 2023.

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

UTMD paid $1,052 ($0.300/share) in dividends to stockholders in 3Q 2024 compared to $1,071 ($0.295/ share) paid in 3Q 2023.

Dividends paid to stockholders during 3Q 2024 were 30% of 3Q 2024 Net Income.

UTMD paid $3,222 ($0.300/share) in dividends to stockholders in 9M 2024 compared to $3,211 ($0.295/ share) paid in 9M 2023.

Share repurchases in 2024 offset the higher dividend per share.

Dividends paid to stockholders during 9M 2024 were 29% of 9M 2024 Net Income.

UTMD’s closing share price at the end of 3Q 2024 was $66.91, slightly up from the closing price of $66.81 three months earlier at the end of 2Q 2024, but 20.6% lower from the closing price of $84.22 nine months earlier at the end of 2023.

UTMD’s closing share price one year ago at the end of 3Q 2023 was $86.00.

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 $8,038 in 1H 2024 compared to $11,828 in 1H 2023.

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.

The $5,055 lower cash provided by operating activities was primarily due to $1,377 lower Net Income despite $3,276 lower intangible asset amortization expense, together with a $508 decrease in 9M 2024 inventories instead of a $925 increase in 9M 2023, a $229 increase in accounts payable (A/P) instead of a $711 decrease in 9M 2023, a $367 greater decrease in accrued expenses and a $133 greater decline in deferred income taxes.

The foregoing uses of cash were offset by a $360 increase in trade accounts receivable instead of a $2,133 decrease in 9M 2023.

Capital expenditures for property and equipment (PP&E) were $221 in 9M 2024 compared to $549 in 9M 2023, additionally offset by $27 in proceeds from the 2024 sale of PP&E no longer needed.

The PP&E capital expenditures in 2024 were normal equipment replacement, not for expansion.

Capital expenditures for intangible assets were $5 in 9M 2024 compared to none in 9M 2023.

UTMD made cash dividend payments of $3,222 in 9M 2024 compared to $3,211 in 9M 2023.

UTMD used $13,259 cash for share repurchases in 9M 2024 compared to no share repurchases in 9M 2023.

In the form of dividends and share repurchases, UTMD returned $16,481 to stockholders in 9M 2024 compared to $3,211 in 9M 2023.

In 9M 2024 (actually all in 1H 2024), the Company received $390 and issued 7,592 shares of stock on the exercise of employee stock options.

Option exercises in 9M 2024 were at an average price of $51.39 per share.

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

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

5 unchanged sentences

k) Assets and Liabilities

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%.

September 30, 2024 total consolidated assets were $129,694, a net decrease of $5,764 from December 31, 2023.

Consolidated Current Assets alone decreased $4,613, as cash decreased $4,416 and inventories decreased $476, while receivables increased by $330.

The larger total asset decrease was due to a $1,018 decrease in Net Intangible Assets (IIA) plus a $133 decrease in worldwide (WW) net Property, Plant & Equipment (PP&E) assets.

Net IIA declined as a result of amortization combined with a stronger GBP for remaining Femcare IIA.

September 30, 2024 Net Intangible Assets (goodwill plus other intangible assets, less amortization) declined $1,018 from the end of 2023.

Only $5 in intangible assets were acquired in 9M 2024.

At September 30, 2024, Net Intangible Assets including goodwill were less than 14% of consolidated Total Assets compared to 14% at year-end 2023, and 15% one year ago at September 30, 2023.

Despite the $133 decline in total consolidated PP&E net book value, OUS PP&E in USD actually increased $56, because the impact of stronger foreign currencies outweighed depreciation.

UTMD’s Ireland subsidiary EUR-denominated assets and liabilities on September 30, 2024 were translated into USD at a foreign currency exchange (FX) rate 0.8% higher (stronger EUR relative to the USD) than the FX rate at the end of 2023.

UTMD’s UK subsidiary GBP-denominated assets were translated into USD at an FX rate 5.2% higher (stronger GBP) than the FX rate at the end of 2023.

UTMD’s Australia subsidiary AUD-denominated assets were translated into USD at an FX rate 1.6% higher (stronger AUD) than the FX rate at the end of 2023.

UTMD’s Canada subsidiary CAD-denominated assets were translated into USD at an FX rate 2.3% lower than the FX rate at the end of 2023.

The net book value of WW consolidated USD PP&E declined $133 at September 30, 2024 from the end of 2023 due to the period-ending changed FX rates noted above, $221 in new asset purchases and $530 in depreciation.

Working capital (Current Assets minus Current Liabilities) was $98,221 at September 30, 2024 compared to $101,559 at December 31, 2023.

The primary source of the $3,338 working capital decrease was from a consolidated decrease of $4,416 in cash.

Noncash working capital, independent from the change in cash, increased $1,078 as Receivables increased $330 and Accrued Liabilities decreased $1,505, which were offset by a $476 decrease in Inventories and a $231 increase in Accounts Payable.

Receivables at the end of 3Q 2024 increased while sales were lower because days in trade receivables were unusually low at the end of 2023.

Days in trade receivables at the end of 2023 were just 24 compared to 34 at the end of 3Q 2024, which remains within management’s target.

Accrued liabilities declined substantially as a result of lower accrued year-end profit-sharing bonuses, customer deposits, income taxes payable and litigation expense.

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.

The long-term deferred tax liability (DTL) balance for Femcare IIA ($9,084 on the date of the acquisition) was $779 (£582) at September 30, 2024, compared to $1,120 (£880) at December 31, 2023, and $1,195 (£979) at September 30, 2023.

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 $341 at September 30, 2024 from December 31, 2023, as a result of 9M 2024 amortization expense of $1,522, which reduced the DTL balance by $380 (using UK tax rate = 25%).

The remaining difference was due to the FX rate change when converting the GBP to USD at September 30, 2024.

UTMD’s total debt ratio (Total Liabilities/ Total Assets) as of September 30, 2024 was 4%, including a remaining $1,256 Repatriation Tax liability from the 2017 “Tax Cuts and Jobs Act” payable over another year.

UTMD’s total debt ratio as of December 31, 2023 was 5%, and as of September 30, 2023 was 6%.

The $5,764 decrease in Total Liabilities and Stockholders’ Equity (same as the increase in Total Assets) at September 30, 2024 from December 31, 2023 was due, in addition to a $1,648 decline in Total Liabilities, to a $4,116 net decrease in Stockholders’ Equity.

The 9M 2024 $16,481 in stockholder dividends and share repurchases reduced Stockholders’ Equity, while the $10,972 in 9M 2024 Net Income and $390 received from exercise of employee options increased Stockholders’ Equity.

The remaining difference was due to FX rate changes in OUS balance sheet values.

l) Management's Outlook

7 unchanged sentences

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.

UTMD’s 2024 plan remains the same, as management continues to focus on bringing items 1) -4) to better fruition in 4Q 2024.

Sales in 4Q 2024 are expected to be lower than in 3Q 2024 given the lack of a previously normal quarterly shipment to UTMD’s DPT kit distributor in China, the impact no expected orders from UTMD’s previously largest (biopharm) OEM customer, and continued weakness in Filshie device sales.

Revenues and Net Income for the year 2024 are now expected to be less than the beginning-of-year projection in UTMD’s SEC 10-K report.

The year 2024 revenue sales decline is expected to be in the range of 18 to 19% with a similar decline in Net Income.

EPS will benefit from continued share repurchases.

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