Full Press Release Details
Medical Products, Inc. Reports Financial Performance for Third Quarter
City, Utah - In the third calendar quarter (3Q) 2009 and three quarters
year-to-date, or nine months (9M) of 2009, Utah Medical Products, Inc.'s
(Nasdaq: UTMD) changes in financial results compared to the same time period in
the prior calendar year were as follows:
| 3Q (July - September) | 9M (January - September) | |
| Sales: | ( 7%) | (8%) |
| Gross Profit: | (11%) | (11%) |
| Operating Income: | (19%) | (14%) |
| Net Income: | (11%) | (16%) |
| Earnings Per Share: | ( 5%) | (10%) |
2009 and 9M 2009, UTMD achieved the following profit margins:
| 3Q 2009 (July - September) | 9M 2009 (January - September) | |
| Gross Profit Margin (gross profits/ sales): | 52.4% | 53.2% |
| Operating Profit Margin (operating profits/ sales): | 35.7% | 36.3% |
| Net Profit Margin (profit after taxes/ sales): | 24.2% | 24.3% |
by UTMD's CEO Kevin Cornwell:
3Q 2009 financial results were disappointing when compared to 3Q 2008, UTMD's
performance did improve relative to the first half of the year. As a result, I
expect that UTMD will be able to achieve closer to the top than the bottom of
the $1.71 - $1.75 eps range previously projected for the calendar year 2009. In
4Q 2009, we expect to see a positive change in income statement categories
compared to 4Q 2008 yielding final sales and eps 6-7% lower for 2009 as a whole
compared to 2008. Even in this disappointing year, in my view, UTMD
will have maintained excellent profitability and returns to
our policy is to let performance speak for itself, UTMD hasn't had much to
discuss with shareholders about marketing and new product development
initiatives in 2009. Nevertheless, I am optimistic that projects
underway have the potential to improve financial results in 2010."
2009, domestic direct sales, comprised of sales to finished device end-users,
were down 4% compared to 9M 2008. Domestic direct sales of obstetric
devices, the product category most affected by restrictive GPO agreements,
declined $498,000 (10%). Domestic direct sales of neonatal devices declined
$62,000 (1%), and domestic direct electrosurgery sales were essentially the
same. U.S. OEM sales, sales of components to other companies, declined $34,000
(3%) compared to 9M 2008.
sales improved in 3Q 2009 from the prior quarter despite the fact that UTMD's
largest international customer in 2008 still has not purchased DPT kits or
sensors this year. In 9M 2008, this international OEM customer purchased
$1,301,000, which represents 74% of UTMD's 9M 2009 total consolidated sales
decline compared to 9M 2008.
9M 2009 to 9M 2008 global sales in product categories, blood pressure
monitoring/ components (BPM) sales were down 23%, neonatal device sales were
about the same, gynecology/ electrosurgery device sales were up 2% and
obstetrics device sales were down 10%. The loss of sales to UTMD's largest
international customer were all in the BPM category and were all manufactured in
UTMD's Ireland facility. In 9M 2009, UTMD Ireland trade shipments were 24% lower
in US Dollar terms and 16% lower in Euro terms.
average 9M 2009 gross profit margin (GPM) was 1.6 percentage points lower than
in 9M 2008. In addition to less absorption of overhead costs on lower sales
volume, higher raw material costs and lower average unit selling prices in a
very competitive U.S. hospital market, two additional factors lowered average
GPM about one full percentage point in 3Q 2009 as a result of shipping an
unusually large China customer order from UTMD Ltd.: 1) WIP/FG
inventories in Ireland declined substantially, which reduced fixed overhead
absorption and magnified fixed overhead costs in Ireland at a USD rate that was
higher than when the inventory was built earlier in the year, and 2) since the
unit prices had been previously fixed in USD terms as part of a long term supply
agreement, and manufacturing costs were incurred in EURO terms, the weaker USD
reduced the profitability of the shipment. In order to keep people in Ireland
employed, this was an exception to the rule that UTMD builds product in Ireland
where prices are fixed in EURO, and in the U.S. where prices are fixed in
USD. Some adjustments in operations were made in 3Q including a six
percent layoff of U.S. employees and purchase of new production equipment which
will not begin to help GPM results until the 4Q.
expenses were $151,000 lower in 9M 2009 than in 9M 2008, but they were $119,000
higher in 3Q 2009 than in 3Q 2008, yielding the only 3Q income statement
category (operating profit) which did not improve relative to 1H 2009
performance. This was due to an extraordinary $250,000 adjustment
(reduction) in accrued senior management bonuses in 3Q 2008 that did not recur
2009, lower net income relative to 9M 2008 was leveraged by a higher income tax
provision rate of 34.6% compared to the tax provision rate of 32.7% of EBT in 9M
2008. The difference was due to one-time refunds in 2008 on amended 2004-2006
income tax returns for Ireland, and the fact that Ireland earnings before taxes
(EBT), taxed at a much lower rate than U.S. EBT, were down more than U.S.
EBT. However, the tax provision rate in 9M 2009 was more comparable
to an expected income tax rate for the amount of profits typically generated by
UTMD. For example, the income tax provision rate in 9M 2007 was
declined less than net income because diluted shares used to calculate EPS
declined 7.4% from 3,914,622 for 9M 2008 to 3,623,646 for 9M 2009, primarily as
a result of share repurchases in 4Q 2008 when UTMD's stock price declined
substantially. UTMD's most recent closing share price on October 21 is 29%
higher than the average cost of share repurchases in 4Q 2008. The
most recent four calendar quarters' eps were $1.72.
September 30, 2009 balance sheet remained strong. Cash and investments balances
increased by $2 million from the end of the 2Q 2009 primarily because UTMD
decreased its inventories and did not repurchase stock in 3Q 2009 while it
maintained excellent overall profitability. UTMD did, however, continue to
increase capital expenditures for facilities and equipment, as well as new
technology that will aid future performance. Capital expenditures in
9M 2009 were $443,000 compared to $194,000 in 9M 2008. An increased rate of
capital investment will continue as UTMD will expand its Midvale facility to
take advantage of current attractive construction costs. Compared to the end of
2008, cash and investments balances as of September 30 are $3 million higher
while the rest of current assets are about the same. Despite its much
lower performance in 2009 and a weaker USD, UTMD Ltd in Ireland has maintained a
positive cash flow that has allowed a methodical reduction of the Note Payable
balance, UTMD's only debt.
Ratio (including the current portion of Ireland loan) = 8.8
in Receivables (based on 3Q sales activity) = 40
Average Inventory Turns (based on 3Q CGS) = 3.1
Year-to-Date ROE = 17% (prior to dividend payments)
= 8% (after payment of shareholder dividends)
from unexercised option shares added to actual weighted average outstanding
shares for purposes of calculating eps was 33,000 in 3Q 2009 compared to 36,100
in 3Q 2008, and 17,600 in 9M 2009 compared to 39,200 in 9M 2008. The
actual number of outstanding shares at the end of 3Q 2009 was 3,610,400 which
included 3Q employee option exercises of 4,000 shares. The total