UTMD Reports Financial Performance for Third Quarter and Nine Months of Year 2019
In USD terms, changes in 3Q and 9M 2019 consolidated US GAAP income statement results compared to the same time periods in the prior calendar year were as follows:Excluding the 3Q 2018 REPAT tax provision adjustment, the resulting non-GAAP Net Income and Earnings Per Share follow:Financial results in 3Q 2019 continued to be hampered on the top line by a stronger USD, although to a lesser degree than in the first six months of the year. The improvement in 3Q 2019 Sales was essentially due to a conversion from selling the Filshie Clip System to a third party distributor in the U.S. in 2018 to selling directly to U.S. medical facilities in 3Q 2019, and an increase in U.S. OEM sales. The Gross Profit increase was due to the U.S. direct sales of the Filshie Clip System (Filshie devices), which was offset on the Operating Income line by new identifiable intangible asset (IIA) amortization expense resulting from UTMD’s February 2019 purchase of the remaining U.S. exclusive distribution rights from Cooper Surgical Inc (CSI).Because 23.6% of 3Q 2019 consolidated Sales and 27.2% of 9M 2019 consolidated Sales were in foreign currencies, the volatility of foreign currency exchange (FX) rates for sales and expenses outside the U.S. (OUS) continued to have an impact on period-to-period relative financial results. FX rates for income statement purposes are transaction-weighted averages. The average rates from the applicable foreign currency to USD during 3Q 2019 and 9M 2019 compared to the same periods in 2018 follow:UTMD’s 3Q 2018 and 9M 2018 revenues invoiced in the above foreign currencies represented 33.3% and 32.6% of total consolidated USD sales respectively. The weighted average negative impact on all foreign currency sales from the change in FX rates was 5.2% in 3Q 2019 and 5.7% in 9M 2019, reducing reported USD sales in 3Q 2019 by $145 relative to the same FX rates in 3Q 2018 and by $576 in 9M 2019 relative to the same FX rates in 9M 2018. In constant currency terms, i.e. using the same FX rates as in the applicable periods in 2018, total consolidated 3Q 2019 sales were up $2,248 (+21.6%), and 9M 2019 total consolidated constant currency sales were up $3,407 (10.6%).Other significant revenue changes in 3Q and 9M 2019 as compared to the same periods in 2018 are described later in this report: a substantial increase in 2019 U.S. OEM sales; an early shipment, at the China distributor’s request, of a scheduled 4Q 2019 blood pressure transducer kit order; and a continued pause in U.S. neonatal device exports due to regulatory re-registrations by UTMD’s third party distributor in China.UTMD US GAAP profit margins in 3Q 2019 and 9M 2019 compared to 3Q 2018 and 9M 2018 follow:Excluding the 3Q 2018 REPAT tax provision adjustment, the resulting non-GAAP Net Income Margin follows:The 2019 dilution in Gross Profit Margin (GPM) was due to product mix, more specifically, much higher (lower than average GPM) OEM sales along with substantially higher low GPM sales of pressure transducer kits to UTMD’s China distributor as a result of the distributor’s uneven requested shipment pattern. As UTMD stockholders likely already understand, the GPM obtained from sales of products manufactured by UTMD for other companies, and of UTMD devices sold through third party distributors, are inherently lower because the costs of marketing the products resides with UTMD’s customer. Primarily because of the mix shift, UTMD now expects that its GPM for the year as a whole may be three percentage points lower than projected at the beginning of the year.UTMD’s 2019 GPM has not yet benefited from the early 2019 acquisition of distribution rights of its Filshie devices in the U.S. from CSI because of the substantial remaining inventory which was repurchased by UTMD at CSI’s cost. Although UTMD has picked up the distributor margin on higher U.S. Filshie device direct sales, it has not realized any Gross Profit contribution from Femcare sales of Filshie devices to the U.S. yet. Another way to explain this is that approximately $2 million in UTMD’s consolidated Gross Profit was recorded in 9M 2018 from Femcare’s 9M 2018 sales of Filshie devices to the third party U.S. distributor, whereas Femcare’s Gross Profit contribution from sales of Filshie devices to the U.S. (to intercompany distributor UTMD) has been zero in 9M 2019 because the Gross Profit in inventory from intercompany sales is eliminated when consolidating financial results (i.e. not recognized until the devices are sold to a third party). The fact that the CSI repurchased inventory lasted longer than expected has helped lower GPM results relative to the increase expected at the beginning of the year.UTMD’s Operating Income Margin was diluted further (in addition to the lower GPM) by a $1,105 3Q 2019 expense, and in 9M 2019 by a $2,947 expense, from straight-line amortization of the $21,000 purchase price that UTMD paid CSI to acquire the remaining 4.75 years’ exclusive U.S. Filshie device distribution rights because the purchase price of CSI’s remaining exclusive distribution rights was recognized as an IIA. UTMD’s Operating Income Margin from the acquisition is expected to ramp up as a result of an estimated additional $500 Gross Profit which will be achieved quarterly at the same Filshie device sales rate as 3Q 2019 after the CSI inventory has been depleted, disregarding UTMD’s potential to grow Filshie device sales in the U.S. Sep 30, 2019 Sep 30, 2018 Change
GBP 1.230 1.306 (5.8%)
EUR 1.091 1.163 (6.2%)
AUD 0.675 0.724 (6.8%)
CAD 0.755 0.774 (2.4%)Net Income in 9M 2019 of $10,369 was 31.6% lower than the US GAAP Net Income of $15,162 in 9M 2018 which included the 3Q 2018 $3,230 favorable adjustment in UTMD’s calculation of its “one-time” REPAT tax due under the TCJA enacted in December 2017. UTMD’s Net Income in 9M 2019 was 13.5% lower than the 9M 2019 non-GAAP Net Income of $11,982, which excludes the REPAT tax adjustment. UTMD’s Net Income in 9M 2019 was after $2,947 IIA amortization expense which did not occur in 9M 2018. The average consolidated income tax provisions (as a % of EBT) in 9M 2019 and 9M 2018 were 21.1% and 20.4%, respectively.Earnings per share (EPS)
Diluted EPS of $.991 in 3Q 2019 were 45.0% lower than $1.802 in 3Q 2018, which included a 3Q 2018 favorable EPS adjustment from UTMD’s recalculation of its “one-time” REPAT tax due under the TCJA enacted in December 2017. UTMD’s EPS in 3Q 2019 was 3.9% higher than the non-GAAP 3Q 2018 EPS of $.954 excluding the REPAT tax adjustment. EPS of $2.774 in 9M 2019 were 31.4% lower than $4.041 in 9M 2018, which included the 3Q 2018 favorable EPS adjustment in UTMD’s calculation of its “one-time” REPAT tax due under the TCJA enacted in December 2017. UTMD’s EPS in 9M 2019 was 13.1% lower than the non-GAAP 9M 2018 EPS of $3.194 which excludes the REPAT tax adjustment. The lower non-GAAP 9M EPS compared to higher non-GAAP 3Q EPS was due to the fact that in early 2019, the increased Gross Profit realized from direct sales of Filshie devices in the U.S. did not fully offset the additional expense from amortizing the IIA associated with purchasing the exclusive U.S. distribution rights from CSI on a straight line basis. Diluted shares were 3,737,335 in 3Q 2019 compared to 3,753,111 in 3Q 2018, and 3,738,056 in 9M 2019 compared to 3,751,830 in 9M 2018. The lower diluted shares in 2019 were the combined result of 15,000 shares repurchased in 4Q 2018 plus 5,000 shares repurchased in 2Q 2019, employee option exercises and a new option award in December 2018.The number of shares added as a dilution factor in 3Q 2019 was 17,588 compared to 19,876 in 3Q 2018. The number of shares added as a dilution factor in 9M 2019 was 16,435 compared to 22,235 in 9M 2018. In December 2018, 22,400 option shares were awarded to 45 employees at an exercise price of $74.64 per share. No other options were awarded in 2018, and no options were awarded in 9M 2019.
UTMD paid $1,028 ($0.275/share) in dividends to stockholders in 3Q 2019 compared to $1,008 ($0.270/ share) paid in 3Q 2018. Dividends paid to stockholders during 3Q 2019 were 28% of 3Q 2019 Net Income. UTMD paid $3,083 ($0.275/share) in dividends to stockholders in 9M 2019 compared to $3,018 ($0.270/ share) paid in 9M 2018. Dividends paid to stockholders during 9M 2019 were 30% of 9M 2019 Net Income. Utah Medical Products, Inc.
INCOME STATEMENT, Third Quarter (3 months ended September 30)
(in thousands except earnings per share):INCOME STATEMENT, Three Quarters (9 months ended September 30)
(in thousands except earnings per share):BALANCE SHEET Contact: Crystal Rios (801) 566-1200