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Utah Medical Q3 Earnings Decline Y/Y on Lower OEM Sales

Zacks Equity Research

Wed, Oct 30, 2024, 9:14 AM 4 min read

Revenues dropped 20% year over year to $10 million from $12.5 million, reflecting broad-based declines across UTMD's core business lines. This decline in revenues was primarily due to reductions in sales to key OEM customers, specifically PendoTECH, and a minor decrease in Filshie Clip System sales.

UTMD's third-quarter 2024 results indicate challenges from declining revenues, primarily due to reduced OEM sales and minor Filshie Clip System declines. Despite this, UTMD leveraged cost-control measures, including reductions in personnel and overhead adjustments, which kept profit margins from declining, as projected at the beginning of the year. The cessation of amortization related to the acquisition of Filshie Clip System's distribution rights provided further relief in operating expenses. UTMD's focus on preserving margins and disciplined cost management will be critical as revenue headwinds are expected to persist.

Utah Medical Products, Inc. Price, Consensus and EPS Surprise

Utah Medical Products, Inc. price-consensus-eps-surprise-chart | Utah Medical Products, Inc. Quote

Key Business Metrics

Revenue Breakdown

Worldwide (WW) consolidated sales decreased 20% year over year, with U.S. sales declining 21.7% and international sales down 17.6%. Domestic OEM sales saw the largest decrease at 54.7%, driven mainly by a $1.1 million drop in PendoTECH sales, while direct Filshie Clip System sales also declined 10.7%.

Gross Profit

Gross profit decreased 21.2% year over year to $5.8 million, reflecting both lower sales and higher production costs. Gross profit margin contracted slightly from 58.8% in third-quarter 2023 to 58% in third-quarter 2024 due to persistent material cost inflation and lower operational efficiencies stemming from reduced sales volumes.

Operating Expenses

In the third quarter of 2024, Utah Medical managed to lower its operating expenses to $2.5 million, marking a 27.5% reduction from $3.4 million in the same period of 2023. This reduction was significantly influenced by the end of the amortization of a $21 million intangible asset related to previous acquisitions, which accounted for substantial non-cash expenses in the prior year.

Operating Income

Operating income decreased by 15.8% to $3.3 million. However, UTMD’s operating income margin improved from 31.7% in the third quarter of 2023 to 33.4% in the third quarter of 2024. This margin expansion was supported by reductions in operating expenses.

Net Income

Utah Medical reported a net income of $3.6 million, a decrease of 9.4% from the $3.9 million recorded in the same quarter the previous year. Despite this decline, the net income margin improved significantly, increasing from 31.5% to 35.6%. This enhancement in profitability can be attributed to the combination of lower operating expenses and higher net non-operating income, alongside a favorable shift in tax provisions.

Net non-operating income (NOI) provided additional support, rising to $0.84 million, slightly up from $0.81 million in the third quarter of 2023, with higher interest income and gains from currency remeasurements. Notably, the U.S. excise tax on share repurchases introduced in 2024 impacted NOI, but overall, higher NOI helped offset declines in other profit metrics. As a result, income before taxes fell only 12.6%, a less severe decrease relative to the drop in sales.

Balance Sheet

As of Sept. 30, 2024, Utah Medical held $88.5 million in cash and investments, a decrease from $92.9 million at the end of 2023.

Total assets also declined slightly to $129.7 million from $135.5 million.

Current liabilities were reduced to $3.4 million, down from $4.7 million at the 2023-end level.

Stockholders’ equity stood at $124.2 million, a minor decrease from $128.3 million at year-end 2023.

The current ratio improved significantly to 29.6.

Management Guidance

UTMD provided insights into expected year-end trends. Management anticipates a $6 million annual revenue decline in 2024 from reduced PendoTECH sales, which are expected to account for less than 7% of consolidated annual sales. Combined with lower Filshie Clip System sales, these reductions suggest a potential annual revenue decline of around 18-19% year over year in 2024. Additionally, EBITDA is projected to range from $19 to $20 million for the full calendar year, signaling management’s emphasis on sustaining operational profitability even as revenue declines.

Other Developments

During the third quarter of 2024, UTMD repurchased 58,377 shares at an average cost of $66.22 per share, totaling $3.9 million. These repurchases reflect management’s confidence in the company's long-term value.

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