par Utah Medical Products, Inc. (NASDAQ:UTMD)
UTMD Reports Audited Year 2023 and Fourth Quarter Financial Performance
EQS-News: Utah Medical Products, Inc. / Key word(s): Manufacturing SALT LAKE CITY, UT - Currencies in this release are denoted as $ or USD = U.S. Dollars; AUD = Australia Dollars; £ or GBP = UK Pound Sterling; C$ or CAD = Canadian Dollars; and € or EUR = Euros. Currency amounts throughout this report are in thousands, except per share amounts and where noted. Overview of Results Profit margins in 4Q and year 2023 compared to 4Q and year 2022 follow: Total consolidated worldwide sales were $2 million (4%) lower in 2023 because, as expected, sales to UTMD’s biopharma OEM customer were $3 million lower. With lower Sales together with higher overhead costs associated primarily with cost-of-living adjustments for employees, and inflation in raw material costs, UTMD was not able to maintain GP margins in 2023 consistent with 2022, although the result was near its targeted 60% level for the year. OI margins were further diluted by unusual litigation expense associated with Filshie clip product liability lawsuits in the U.S. On the other hand, with the help of interest income on UTMD’s cash balances, EBT and NI margins were higher in 2023 than in 2022, allowing an increase in NI and EPS for the year. Worldwide (WW) consolidated sales in 2023 were $2,057 lower than in 2022, essentially because sales to UTMD’s largest biopharma OEM customer were $2,925 lower. Overall domestic sales in 2023 were down 12% while outside the U.S. (OUS) sales were up 8%. Although sales invoiced in foreign currencies were 15% higher in 2023 compared to 2022, making up 30% of 2023 total consolidated sales compared to just 25% in 2022, foreign currency exchange (FX) rate changes had a minimal impact.
UTMD’s December 31, 2023 Balance Sheet, in the continued absence of debt, remained strong. After using $4,282 cash to pay stockholder dividends and $639 for new manufacturing equipment and tooling during 2023, ending Cash and Investments were $92.9 million on December 31, 2023 compared to $75.1 million on December 31, 2022. In addition, in order to hedge against ongoing supply chain disruption, UTMD continued to use its cash trove to increase inventories $0.8 million, a 9% increase from the end of 2022 despite 4% lower revenues. Stockholders’ Equity (SE) increased $14.1 million as of December 31, 2023 from December 31, 2022 despite the fact that stockholder dividends reduced SE. Foreign currency exchange (FX) rates for Balance Sheet purposes are the applicable rates at the end of each reporting period. The FX rates from the applicable foreign currency to USD for assets and liabilities at the end of calendar year 2023 compared to the end of 2022 and the end of 3Q 2023 follow:
Revenues (sales) - 4Q 2023 Total consolidated 4Q 2023 UTMD worldwide (WW) sales were $12,333 compared to $13,575 in 4Q 2022, $1,242 (9.1%) lower than in 4Q 2022. Total constant currency sales were $1,441 (10.6%) lower. U.S. domestic sales were 10.7% lower and OUS sales were 7.2% lower in USD terms than in 4Q 2022. Domestic U.S. sales in 4Q 2023 were $6,736 compared to $7,542 in 4Q 2022. Domestic sales are invoiced in USD and are not subject to FX rate fluctuations. The components of domestic sales include 1) “direct other device sales” of UTMD’s medical devices to user facilities (and med/surg stocking distributors for hospitals), excluding Filshie device sales, 2) “OEM sales” of components and other products manufactured by UTMD for other medical device and non-medical device companies, and 3) “direct Filshie device sales”. UTMD separates Filshie device sales from other medical device sales direct to medical facilities because of their significance, and the acquisition history. Direct non-Filshie device sales, representing 53% of total domestic sales, were $170 (4.5%) lower in 4Q 2023 than in 4Q 2022. OEM sales, representing 29% of total domestic sales, were $520 (21.1%) lower. Direct Filshie device sales, representing 18% of total domestic sales, were $117 (8.9%) lower in 4Q 2023 compared to 4Q 2022. OUS sales in 4Q 2023 were $5,597 compared to $6,033 in 4Q 2022. Unlike earlier in the year when the USD was stronger, the FX rate impact on OUS sales of a stronger EUR and GBP added $199 to 4Q 2023 sales relative to a 4Q 2022 constant currency basis. This is evidence that 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. “Constant currency” means exchanging foreign currency sales into USD-denominated sales at the same FX rate as was in the previous period of time being compared. FX rates for income statement purposes are transaction-weighted averages. The average FX rates from the applicable foreign currency to USD during 4Q 2023 and 4Q 2022 for revenue purposes follow: 4Q 2023 4Q 2022 Change The combined weighted-average positive FX impact on 4Q 2023 foreign currency sales was 5.3%. The portion of OUS sales invoiced in foreign currencies in USD terms were 32% of total consolidated 4Q 2023 sales compared to 27% in 4Q 2022. OUS sales invoiced in foreign currencies are to direct end-users in Ireland, the UK, France, Canada, Australia and New Zealand, and to OUS distributors of products manufactured by UTMD subsidiaries in Ireland and the UK. In USD terms, export sales to OUS distributors from Ireland represented 67% of total OUS distributor sales. Export sales from the U.S. to OUS distributors are invoiced in USD. Sales to OUS distributors were 12% lower in 4Q 2023 than in 4Q 2022 due mainly to lower Ireland biopharma OEM shipments. Direct to end-user OUS shipments are generally invoiced in the applicable local currency. Helped by an approximate 6% stronger GBP and EUR, direct to end-user OUS 4Q 2023 sales in USD terms were 40% higher in Ireland and 19% higher in the UK. On the other hand, direct to end-user sales in USD terms were 17% lower in Canada, 13% lower in Australia/New Zealand and 1% lower in France, compared to 4Q 2022. The FX rates in Canada and Australia/New Zealand were about the same in both periods. Sales -2023 Year Total consolidated 2023 UTMD WW USD-denominated sales were $50,224 compared to $52,281 in 2022, which was $2,057 (3.9%) lower than in 2022. The decline essentially resulted from the fact that 2023 WW shipments by UTMD to its largest OEM customer were $2,925 (25%) lower, which was anticipated in the Company’s beginning-of-year projections. U.S. domestic sales were 12% lower and OUS USD-denominated sales were 8% higher than in 2022. Domestic U.S. sales in 2023 were $28,204 compared to $31,971 in 2022, which was $3,767 (11.8%) lower than in 2022. All three categories of domestic sales were lower, led by U.S. OEM sales which were $2,438 (22.4%) lower than in 2022. Domestic sales to UTMD’s biopharma OEM customer were $2,581 (28.7%) lower. This trend is expected to continue in 2024. Domestic Filshie device sales, representing 17% of total domestic sales, were $470 (9.0%) lower in 2023 compared to 2022. Direct device sales other than Filshie, representing 53% of total domestic sales, were $859 (5.4%) lower in 2023 than in 2022. In this last category, domestic neonatal device sales alone were $866 lower, predominantly in 2Q 2023 as a result of continued raw materials supply chain disruption. OUS USD-denominated sales in 2023 were $1,710 (+8.4%) higher at $22,020 compared to $20,310 in 2022. Sales invoiced in foreign currencies, which were $14,871 when converted to USD, represented 68% of OUS sales and 30% of consolidated total sales. A slightly weaker USD added $166 in OUS foreign currency sales compared to constant currency terms. FX rates for income statement purposes are transaction-weighted averages. The weighted-average FX rates from the applicable foreign currency to USD during 2023 and 2022 for revenue purposes follow: 2023 2022 Change The combined weighted-average favorable FX impact on 2023 foreign currency OUS sales was 1.1%, increasing reported USD sales by $166 relative to the same foreign currency sales in 2022. In constant currency terms, OUS sales in 2023 were 4.3% lower than OUS sales in 2022. The portion of OUS sales invoiced in foreign currencies in USD terms was 30% of total consolidated 2023 USD sales compared to 25% in 2022. Including the impact of changed FX rates, OUS 2023 direct to end-user sales in USD terms were 14% higher in Ireland, 15% lower in Canada, 7% higher in France and 21% higher in the UK. Direct to end-user sales in Australia, which included New Zealand, were 17% lower. USD denominated sales to OUS distributors were 11% higher in 2023 than in 2022.
Gross Profit (GP) GP results from subtracting the costs of manufacturing, quality assurance and receiving materials from suppliers. UTMD’s GP was $2,158 (6.7%) lower in 2023 than in 2022, and $1,229 (14.8%) lower in 4Q 2023 than in 4Q 2022. UTMD generally did not increase prices since February 2023, except on a specific basis for custom OEM work. But supplier costs for raw materials continued to increase and the Company implemented further cost-of-living adjustments during 2023 for employees. UTMD expects further dilution of its GP margin in 2024 as biopharma OEM sales are projected to decline significantly without a comparable decline in fixed manufacturing overheads. Operating Income (OI) OI results from subtracting Operating Expenses (OE) from GP. For the year 2023, OI was $16,777 compared to $19,790 in 2022, a 15.2% decrease. The $3,012 decrease in OI was from a combination of $2,158 lower GP and $854 higher OE. OI in 4Q 2023 was $3,944 compared to $5,070 in 4Q 2022. The $1,126 lower 4Q 2023 OI was a combination of $1,229 lower GP and $103 lower OE. OE are comprised of Sales and Marketing (S&M) expenses, G&A expenses and Product Development (R&D) expenses. The following table summarizes OE in 4Q and year 2023 compared to the same periods in 2022 by OE category:
The following table summarizes “constant currency” OE in 4Q and year 2023 compared to the same periods in 2022 by OE category:
The FX rate change impact in both periods was minor. A stronger EUR and GBP, partially offset by a weaker AUD and CAD, increased total 4Q 2023 OE by $45 and year 2023 OE by $30 compared to constant currency. S&M and R&D expenses increased in 2023 primarily as a result of cost-of-living salary increases. Constant currency S&M expenses were $4 lower in the 4Q, and about the same for the year. Since almost all product development is carried out in the U.S., there was no material R&D expense impact as a result of FX rate changes. With the exception of salary increases in all departments, the primary changes in OE were in the G&A expense category. The two major G&A expense changes were in litigation expense and in 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. The CSI IIA amortization expense, which had been $1,105 per quarter since February 2019, ended during 4Q 2023. Litigation expenses were $401 higher in 4Q 2023, and $990 higher for the 2023 year, compared to the same periods in 2022. Without litigation expense and IIA amortization associated with the Filshie Clip System, consolidated USD G&A OE were $149 higher in 4Q 2023, and $344 higher in year 2023, compared to the same periods in 2022. On a constant currency basis, without litigation expense and IIA amortization associated with the Filshie Clip System, consolidated USD G&A OE were $134 higher in 4Q 2023, and $338 higher in year 2023, compared to the same periods in 2022. For the year, litigation expenses were $1,660 in 2023 compared to $670 in 2022. Litigation expenses in both years were the result of U.S. product liability litigation which remains in discovery. UTMD must defend its longstanding reputation for providing very safe and effective devices. A division of G&A expenses by location follows: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
