10-Q 1 tm223545d2_10q.htm FORM 10-Q tm223545d2_10q.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

     Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 2022

 

or

 

     Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from _________ to _________    

 

Commission File Number 001-32982

 

Atrion Corporation

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

63-0821819

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

One Allentown Parkway, Allen, Texas    75002 

(Address of Principal Executive Offices)(Zip Code) 

 

(972) 390-9800

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, Par Value $0.10 per share

ATRI

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Registration S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒ Yes     ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

 

Title of Each Class

 

Number of Shares Outstanding at

April 28, 2022

Common stock, Par Value $0.10 per share

 

1,795,104

 

 

 

 

ATRION CORPORATION AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

PART I. Financial Information

3

 

 

 

 

 

 

Item 1.

Financial Statements

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (Unaudited)

For the Three Months Ended March 31, 2022 and 2021

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets (Unaudited)

March 31, 2022 and December 31, 2021

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended March 31, 2022 and 2021

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended March 31, 2022 and 2021

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

8

 

 

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

14

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

17

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

17

 

 

 

 

 

PART II. Other Information

17

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

17

 

 

 

 

 

 

Item 1A.

Risk Factors

 

17

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

17

 

 

 

 

 

 

Item 6.

Exhibits

 

18

 

 

 

 

SIGNATURES

 

19

  

2

Table of Contents

 

PART I

 

FINANCIAL INFORMATION

  

 

3

Table of Contents

 

Item 1.

Financial Statements.

  

 

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 (Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

Revenues

 

$47,138

 

 

$39,169

 

Cost of goods sold

 

 

27,894

 

 

 

22,830

 

Gross profit

 

 

19,244

 

 

 

16,339

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling

 

 

2,517

 

 

 

1,926

 

General and administrative

 

 

5,100

 

 

 

4,172

 

Research and development

 

 

1,377

 

 

 

1,310

 

 

 

 

8,994

 

 

 

7,408

 

Operating income

 

 

10,250

 

 

 

8,931

 

 

 

 

 

 

 

 

 

 

Interest and dividend income

 

 

137

 

 

 

217

 

Other investment income/(losses)

 

 

(240)

 

 

62

 

Other income

 

 

25

 

 

 

66

 

 

 

 

(78)

 

 

345

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

 

10,172

 

 

 

9,276

 

Provision for income taxes

 

 

(1,673)

 

 

(1,550)

 

 

 

 

 

 

 

 

 

Net income

 

$8,499

 

 

$7,726

 

 

 

 

 

 

 

 

 

 

Net income per basic share

 

$4.73

 

 

$4.23

 

Weighted average basic shares outstanding

 

 

1,799

 

 

 

1,826

 

 

 

 

 

 

 

 

 

 

Net income per diluted share

 

$4.71

 

 

$4.22

 

Weighted average diluted shares outstanding

 

 

1,803

 

 

 

1,832

 

 

 

 

 

 

 

 

 

 

Dividends per common share

 

$1.95

 

 

$1.75

 

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

 

4

Table of Contents

     

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

March 31,

2022

 

 

December 31,

2021

 

Assets

 

(in thousands)

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$24,886

 

 

$32,264

 

Short-term investments

 

 

35,374

 

 

 

29,059

 

Accounts receivable

 

 

24,158

 

 

 

21,023

 

Inventories

 

 

51,414

 

 

 

50,778

 

Prepaid expenses and other current assets

 

 

2,901

 

 

 

3,447

 

 

 

 

138,733

 

 

 

136,571

 

 

 

 

 

 

 

 

 

 

Long-term investments

 

 

17,566

 

 

 

19,423

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

239,786

 

 

 

233,217

 

Less accumulated depreciation and amortization

 

 

137,626

 

 

 

135,245

 

 

 

 

102,160

 

 

 

97,972

 

 

 

 

 

 

 

 

 

 

Other assets and deferred charges:

 

 

 

 

 

 

 

 

Patents

 

 

1,272

 

 

 

1,302

 

Goodwill

 

 

9,730

 

 

 

9,730

 

Other

 

 

2,177

 

 

 

2,266

 

 

 

 

13,179

 

 

 

13,298

 

 

 

 

 

 

 

 

 

 

Total assets

 

$271,638

 

 

$267,264

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$13,542

 

 

$13,076

 

Accrued income and other taxes

 

 

2,644

 

 

 

270

 

 

 

 

16,186

 

 

 

13,346

 

 

 

 

 

 

 

 

 

 

Line of credit

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Other non-current liabilities

 

 

9,222

 

 

 

9,622

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares

 

 

342

 

 

 

342

 

Paid-in capital

 

 

61,560

 

 

 

61,174

 

Retained earnings

 

 

362,313

 

 

 

357,324

 

Treasury shares,1,625 at March 31, 2022 and 1,619 at December 31, 2021, at cost

 

 

(177,985)

 

 

(174,544)

Total stockholders’ equity

 

 

246,230

 

 

 

244,296

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$271,638

 

 

$267,264

 

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

  

5

Table of Contents

 

ATRION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 

 

 

Three Months Ended

March 31,

 

 

 

2022

 

 

2021

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$8,499

 

 

$7,726

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,420

 

 

 

3,093

 

Deferred income taxes

 

 

(730)

 

 

186

 

Stock-based compensation

 

 

530

 

 

 

497

 

Net change in unrealized gains and losses on investments

 

 

167

 

 

 

(61)

Net change in accrued interest, premiums, and discounts on investments

 

 

77

 

 

 

61

 

Other

 

 

-

 

 

 

25

 

 

 

 

11,963

 

 

 

11,527

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,135)

 

 

(3,790)

Inventories

 

 

(636)

 

 

779

 

Prepaid expenses

 

 

4

 

 

 

1,483

 

Other non-current assets

 

 

630

 

 

 

78

 

Accounts payable and accrued liabilities

 

 

318

 

 

 

(3,406)

Accrued income and other taxes

 

 

2,373

 

 

 

416

 

Other non-current liabilities

 

 

330

 

 

 

317

 

Cash flows from operating activities

 

 

11,847

 

 

 

7,404

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Property, plant and equipment additions

 

 

(7,577)

 

 

(3,044)

Purchase of investments

 

 

(10,009)

 

 

(7,392)

Proceeds from sale of investments

 

 

82

 

 

 

65

 

Proceeds from maturities of investments

 

 

5,226

 

 

 

13,728

 

Cash flows from investing activities

 

 

(12,278)

 

 

3,357

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Purchase of treasury stock

 

 

(3,447)

 

 

-

 

Shares tendered for employees’ withholding taxes on stock-based compensation

 

 

-

 

 

 

(585)

Dividends paid

 

 

(3,500)

 

 

(3,199)

Cash flows from financing activities

 

 

(6,947)

 

 

(3,784)

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(7,378)

 

 

6,977

 

Cash and cash equivalents at beginning of period

 

 

32,264

 

 

 

22,450

 

Cash and cash equivalents at end of period

 

$24,886

 

 

$29,427

 

 

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Income taxes

 

$1,752

 

 

$79

 

 

 

 

 

 

 

 

 

 

Non-cash financing activities:

 

 

 

 

 

 

 

 

Non-cash effect of stock option exercises

 

$-

 

 

$6,012

 

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements

 

6

Table of Contents

 

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

For the Three Months Ended March 31, 2021 and 2022

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares Outstanding

 

 

 

 

Amount

 

 

 

Shares

 

 

 

 

Amount

 

 

Additional

Paid-in

Capital

Retained Earnings

Total

Balances, January 1, 2021

1,826$3421,594$(151,127)$53,527$337,700$240,442

Net income

7,7267,726

Stock-based compensation transactions

3(3)(5,860)6,233373

Shares surrendered in stock transactions

(1)1(585)(585)

Dividends

(3,205)(3,205)

Balances, March 31, 2021

1,828$3421,592$(157,572)$59,760$342,221$244,751

Balances, January 1, 2022

 

 

1,801

 

 

$342

 

 

 

1,619

 

 

$(174,544)

 

$61,174

 

 

$357,324

 

 

$244,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,499

 

 

 

8,499

 

Stock-based compensation transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

386

 

 

 

 

 

 

 

392

 

Purchase of Treasury Stock

 

 

(6)

 

 

 

 

 

 

6

 

 

 

(3,447)

 

 

 

 

 

 

 

 

 

 

(3,447)

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,510)

 

 

(3,510)

Balances, March 31, 2022

 

 

1,795

 

 

$342

 

 

 

1,625

 

 

$(177,985)

 

$61,560

 

 

$362,313

 

 

$246,230

 

 

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

 

7

Table of Contents

 

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

(1)

Basis of Presentation

 

 

 

The accompanying unaudited condensed consolidated financial statements of Atrion Corporation and its subsidiaries (collectively referred to herein as “Atrion,” the “Company,” “we,” “our,” or “us”) have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, these statements include all normal and recurring adjustments necessary to present a fair statement of our consolidated results of operations, financial position, and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s financial statements in conformity with US GAAP requires management to make estimates and assumptions that can have a significant impact on our revenue, operating income, and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments, and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of May 9, 2022, the date of issuance of this Quarterly Report on Form 10-Q. However, these estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments, and estimates, and make changes as we deem necessary.

 

This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 ("2021 Form 10-K").

  

(2)

Inventories

 

 

 

Inventories are stated at the lower of cost or net realizable value. Cost is determined by using the first-in, first-out method. The following table details the major components of inventories (in thousands):

      

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

            2021

 

Raw materials

 

$25,339

 

 

$23,733

 

Work in process

 

 

10,173

 

 

 

9,571

 

Finished goods

 

 

15,902

 

 

 

17,474

 

Total inventories

 

$51,414

 

 

$50,778

 

 

8

Table of Contents

 

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

(3)

Income per share

 

 

 

The following is the computation for basic and diluted income per share:

 

 

 

Three Months ended

March 31,

 

 

 

2022

 

 

2021

 

 

 

(in thousands, except per share amounts)

 

Net income

 

$8,499

 

 

$7,726

 

Weighted average basic shares outstanding

 

 

1,799

 

 

 

1,826

 

Add:  Effect of dilutive securities

 

 

4

 

 

 

6

 

Weighted average diluted shares outstanding

 

 

1,803

 

 

 

1,832

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$4.73

 

 

$4.23

 

Diluted

 

$4.71

 

 

$4.22

 

 

 

Incremental shares from stock options and restricted stock units were included in the calculation of weighted average diluted shares outstanding using the treasury stock method. Potential dilutive securities have been excluded when their inclusion would be anti-dilutive.

 

 

(4)

Investments

 

 

 

As of March 31, 2022, we held investments in commercial paper, bonds, money market accounts, mutual funds, and equity securities. The commercial paper and bonds are considered held-to-maturity and are recorded at amortized cost in the accompanying consolidated balance sheets. The money market accounts, equity securities, and mutual funds are recorded at fair value in the accompanying consolidated balance sheets. The fair values of these investments were estimated using recently executed transactions and market price quotations. We consider as current assets those investments which will mature in the next 12 months including interest receivable on the long-term bonds. The remaining investments are considered non-current assets including our investments in equity securities we intend to hold longer than 12 months.

  

9

Table of Contents

 

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

 

The components of the Company’s cash and cash equivalents and our short- and long-term investments are as follows (in thousands):

 

 

 

March 31,

 2022

 

 

December 31,

2021

 

Cash and cash equivalents:

 

 

 

 

 

 

Money market funds

 

$18,381

 

 

$29,876

 

Commercial paper

 

 

5,394

 

 

 

-

 

Cash deposits

 

 

1,111

 

 

 

2,388

 

Total cash and cash equivalents

 

$24,886

 

 

$32,264

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

Bonds (held-to-maturity)

 

$22,864

 

 

$26,831

 

Commercial paper (held-to-maturity)

 

 

12,211

 

 

 

2,248

 

Equity securities (available for sale)

 

 

312

 

 

 

-

 

Allowance for credit losses

 

 

(13)

 

 

(20)

Total short-term investments

 

$35,374

 

 

$29,059

 

Long-term investments:

 

 

 

 

 

 

 

 

Bonds (held-to-maturity)

 

$12,065

 

 

$13,405

 

Equity securities (available for sale)

 

 

5,015

 

 

 

5,468

 

Mutual funds (available for sale)

 

 

493

 

 

 

559

 

Allowance for credit losses

 

 

(7)

 

 

(9)

Total long-term investments

 

$17,566

 

 

$19,423

 

Total cash, cash equivalents and short and long-term investments

 

$77,826

 

 

$80,746

 

 

 

We utilize a lifetime “expected credit loss” measurement objective for the recognition of credit losses for held-to-maturity securities at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. Our credit loss calculations for held-to-maturity securities are based upon historical default and recovery rates of bonds rated with the same rating as our portfolio. We also apply an adjustment factor to these credit loss calculations based upon our assessment of the expected impact from current economic conditions on our investments. We monitor the credit quality of debt securities classified as held-to-maturity through the use of their respective credit ratings and update them on a quarterly basis with our latest assessment completed on March 31, 2022. During the first quarter of 2022, our allowance for credit losses related to short-term investments decreased by $7 thousand and our allowance for credit losses related to long-term investments decreased by $2 thousand.

 

10

Table of Contents

 

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

 

The following table summarizes the amortized cost of our held-to-maturity bonds at March 31, 2022 aggregated by credit quality indicator (in thousands):

 

Held-to-Maturity Bonds

 

Credit Quality Indicators

 

Fed Govt.     Bonds/Notes

 

 

Municipal Bonds

 

 

Corporate Bonds

 

 

Totals

 

AAA/AA/A

 

$2,370

 

 

$635

 

 

$18,565

 

 

$21,570

 

BBB/BB

 

 

-

 

 

 

-

 

 

 

13,359

 

 

 

13,359

 

    TOTAL

 

$2,370

 

 

$635

 

 

$31,924

 

 

$34,929

 

 

 

Our investments are required to be measured for disclosure purposes at fair value on a recurring basis. Our investments are considered Level 1 or Level 2 as detailed in the table below. The fair values of these investments were estimated using recently executed transactions and market price quotations. The amortized cost and fair value of our investments, and the related gross unrealized gains and losses, were as follows as of the dates shown below (in thousands):

 

 

 

Gross Unrealized

 

 

 

Level

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

As of March 31, 2022:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market

 

 

1

 

 

$

18,381

 

 

$-

 

 

$-

 

 

$18,381

 

Commercial paper

 

 

2

 

 

$

17,605

 

 

$1

 

 

$(9)

 

$17,597

 

Bonds

 

 

2

 

 

$

34,929

 

 

$29

 

 

$(139)

 

$34,819

 

Mutual funds

 

 

1

 

 

$

527

 

 

$-

 

 

$(34)

 

$493

 

Equity investments

 

 

2

 

 

$

6,054

 

 

$-

 

 

$(727)

 

$5,327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market

 

 

1

 

 

$

29,876

 

 

$-

 

 

$-

 

 

$29,876

 

Commercial paper

 

 

2

 

 

$

2,248

 

 

$-

 

 

$-

 

 

$2,248

 

Bonds

 

 

2

 

 

$

40,236

 

 

$97

 

 

$(37)

 

$40,296

 

Mutual funds

 

 

1

 

 

$

558

 

 

$1

 

 

$-

 

 

$559

 

Equity investments

 

 

2

 

 

$

5,675

 

 

$-

 

 

$(207)

 

$5,468

 

 

 

The carrying value of our investments is reviewed quarterly for changes in circumstances or the occurrence of events that suggest an investment may not be fully recoverable. The bonds represent investments in various issuers at March 31, 2022. The unrealized losses for some of these bond investments reflect changes in interest rates following their acquisition. As of March 31, 2022, we had seven bond investments in a loss position for more than 12 months.

 

At March 31, 2022, the length of time until maturity of the commercial paper we owned ranged from less than a month to eight months and the length of time to maturity for the bonds ranged from less than a month to 45 months.

 

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Table of Contents

 

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

(5)

Patents and Licenses

 

 

 

Patents and license fees paid for the use of other entities’ patents are amortized over the useful life of the patent or license. The following tables provide information regarding patents and licenses (dollars in thousands):

   

March 31, 2022

 

December 31, 2021

Weighted Average

Original Life

(years)

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

Weighted Average

Original Life

(years)

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

15.67

 

$ 13,840

 

$ 12,568

 

15.67

 

$ 13,840

 

$ 12,538

 

 

Aggregated amortization expense for patents and licenses was $30 thousand in the three-month periods ended March 31, 2022 and 2021.

 

Estimated future amortization expense for each of the years set forth below ending December 31 is as follows (in thousands):

 

2023

 

$113

 

2024

 

$113

 

2025

 

$112

 

2026

 

$112

 

2027

 

$108

 

 

 

 

 

 

 

 

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Table of Contents

 

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

(6)

Revenues

 

 

 

We recognize revenue when performance obligations under the terms of a contract with our customer are satisfied. This occurs with the transfer of control of our products to customers when products are shipped. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services. Sales and other taxes we may collect concurrent with revenue-producing activities are excluded from revenue.

 

 

 

A summary of revenues by geographic area, based on shipping destination, for the three months ended March 31, 2022 and 2021 is as follows (in thousands):

   

 

 

2022

 

 

2021

 

United States

 

$26,995

 

 

$22,038

 

European Union

 

 

9,337

 

 

 

7,764

 

All other regions

 

 

10,806

 

 

 

9,367

 

Total

 

$47,138

 

 

$39,169

 

  

 

A summary of revenues by product line for the three months ended March 31, 2022 and 2021 is as follows (in thousands):

 

 

 

2022

 

 

2021

 

Fluid Delivery

 

$24,114

 

 

$19,075

 

Cardiovascular

 

 

15,303

 

 

 

12,830

 

Ophthalmology

 

 

1,084

 

 

 

1,693

 

Other

 

 

6,637

 

 

 

5,571

 

Total

 

$47,138

 

 

$39,169

 

 

 

More than 99 percent of our total revenue in the periods presented herein is pursuant to shipments initiated by a purchase order (our “contract”) and recognized at a single point in time when the performance obligation of the product being shipped is satisfied, rather than recognized over time, and is presented as a receivable on the balance sheet. Payment is typically due within 30 days.

 

We maintain an allowance for doubtful accounts to reflect estimated losses resulting from the failure of customers to make required payments. We calculate our credit loss allowance for our trade receivables following a lifetime “expected credit loss” measurement objective. An account is written off when we determine the receivable will not be collected. Historically, bad debt has been immaterial.

 

We have elected to recognize the cost of shipping as an expense in cost of sales when control over the product has transferred to the customer.

 

We do not make any material accruals for product returns and warranty obligations because our returns and warranty obligations have been very low due to our focus on quality control.

 

We do not disclose the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount for which we have the right to invoice. We believe that the complexity added to our disclosures by the inclusion of a large amount of insignificant detail in attempting to disclose information about immaterial contracts would potentially obscure more useful and important information.

 

(7) 

Recent Accounting Pronouncements

 

 

 

From time to time, new accounting pronouncements applicable to us are issued by the Financial Accounting Standards Board or other standards-setting bodies. We generally adopt these standards as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

 

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Table of Contents

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

 

 

Overview

 

 

 

We develop and manufacture products primarily for medical applications. We market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians, hospitals, clinics, and other treatment centers. Our medical products primarily serve the fluid delivery, cardiovascular, and ophthalmology markets. Our other medical and non-medical products include instrumentation and disposables used in valves and inflation devices used in marine and aviation safety products.

 

Our products are used in a wide variety of applications by numerous customers. We encounter competition in all of our markets and compete primarily on the basis of product quality, price, engineering, customer service, and delivery time.

 

Our business strategy is to provide hospitals, physicians, and other healthcare providers with the tools they need to improve the lives of the patients they serve. To do so, we provide a broad selection of products in the areas of our expertise. We have diverse product lines serving primarily the fluid delivery, cardiovascular, and ophthalmic markets, and this diversity has served us well as we encounter changing market conditions. Research and development, or R&D, efforts are focused on improving current products and developing highly-engineered products that meet customer needs and serve niche markets with meaningful sales potential. Proposed new products may be subject to regulatory clearance or approval prior to commercialization and the time period for introducing a new product to the marketplace can be unpredictable. We also focus on controlling costs by investing in modern manufacturing technologies and controlling purchasing processes. We have been successful in consistently generating cash from operations and have used that cash to reduce or eliminate indebtedness, to fund capital expenditures, to make investments, to repurchase stock, and to pay dividends.

 

Our strategic objective is to further enhance our position in our served markets by:

     

 

·

Focusing on customer needs;

 

·

Expanding existing product lines and developing new products;

 

·

Maintaining a culture of controlling cost; and

 

·

Preserving and fostering a collaborative, entrepreneurial management structure.

 

 

For the three months ended March 31, 2022, we reported revenues of $47.1 million, up 20 percent, operating income of $10.3 million, up 15 percent, and net income of $8.5 million, up 10 percent from the three months ended March 31, 2021.

 

Results for the three months ended March 31, 2022

 

Consolidated net income totaled $8.5 million, or $4.73 per basic and $4.71 per diluted share, in the first quarter of 2022. This is compared with consolidated net income of $7.7 million, or $4.23 per basic and $4.22 per diluted share, in the first quarter of 2021. The income per basic share computations are based on weighted average basic shares outstanding of 1,799 thousand in the 2022 period and 1,826 thousand in the 2021 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,803 thousand in the 2022 period and 1,832 thousand in the 2021 period.

 

Consolidated revenues of $47.1 million for the first quarter of 2022 were 20.3 percent higher than revenues of $39.2 million for the first quarter of 2021. Our first quarter 2022 results were favorably impacted by a 26% increase in Fluid Delivery and 19% increase in Cardiovascular revenues compared to the first quarter of 2021.

 

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Table of Contents

 

 

Revenues by product line were as follows (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Fluid Delivery

 

$24,114

 

 

$19,075

 

Cardiovascular

 

 

15,303

 

 

 

12,830

 

Ophthalmology

 

 

1,084

 

 

 

1,693

 

Other

 

 

6,637

 

 

 

5,571

 

Total

 

$47,138

 

 

$39,169

 

 

 

Cost of goods sold of $27.9 million for the first quarter of 2022 was 22.2 percent higher than our cost of goods sold of $22.8 million for the first quarter of 2021, primarily due to higher sales volumes. Our cost of goods sold in the first quarter of 2022 was 59.2 percent of revenues compared to 58.3 percent of revenues in the first quarter of 2021.

 

Gross profit of $19.2 million in the first quarter of 2022 was $2.9 million or 17.8 percent higher than in the comparable 2021 period. Our gross profit percentage in the first quarter of 2022 was 40.8 percent of revenues compared with 41.7 percent of revenues in the first quarter of 2021. The decrease in gross profit percentage in the 2022 period compared to the 2021 period was primarily related to cost increases in labor and materials.

 

Our first quarter 2022 operating expenses of $9.0 million were $1.6 million higher than the operating expenses for the first quarter of 2021. This increase was attributable to a $928 thousand increase in general and administrative expenses primarily in compensation and depreciation expenses. Selling expenses increased $591 thousand primarily for outside services and travel. R&D expenses increased $67 thousand primarily for regulatory costs and supplies.

 

Operating income of $10.3 million in the first quarter of 2022 represented a $1.3 million, or 15 percent, increase in operating income over first quarter 2021 operating income. This increase was due to higher sales and gross profit discussed above partially offset by higher operating expenses. Operating income was 21.7 percent of revenues for the first quarter of 2022 and 22.8 percent of revenues for the first quarter of 2021.

 

Interest and dividend income in the first quarter of 2022 was $137 thousand compared with $217 thousand for the same period in the prior year. The decline in interest and dividend income was largely due to lower interest rates on our investments in the 2022 period as compared to the 2021 period.

 

Other investment income in the first quarter of 2022 was a $240 thousand loss compared with Other investment income of $62 thousand in the first quarter of 2021. These amounts were attributable to unrealized gains and losses on equity investments resulting from changes in the market values of the investments in each quarter.

 

Income tax expense was $1.7 million for first quarter of 2022 compared with $1.5 million for the first quarter of 2021. The effective tax rate for the first quarter of 2022 was 16.4 percent compared with 16.7 percent for the first quarter of 2021. We expect our effective tax rate for 2022 to be approximately 17 percent.

 

Liquidity and Capital Resources

 

As of March 31, 2022, we had a $75.0 million revolving credit facility with a money center bank pursuant to which the lender is obligated to make advances until February 28, 2024. The credit facility is secured by substantially all of our inventories, equipment, and accounts receivable. Interest under the credit facility is assessed at 30-day, 60-day or 90-day LIBOR, as selected by us, plus 1.0 percent and is payable monthly. We had no outstanding borrowings under the credit facility at March 31, 2022 and we were in compliance with all financial covenants.

 

15

Table of Contents

 

 

At March 31, 2022, we had a total of $77.8 million in cash and cash equivalents, short-term investments, and long-term investments. At December 31, 2021, cash and cash equivalents, short-term investments, and long-term investments totaled $80.7 million.

 

Cash flows from operating activities of $11.8 million for the three months ended March 31, 2022 were primarily comprised of net income plus the net effect of non-cash expenses and increases in accounts receivable. During the first three months of 2022, we used $10.0 million for the purchase of investments, $7.6 million for the addition of property and equipment, $3.5 million for dividends, and $3.4 million for the purchase our own stock. During the same period, maturities and sales of investments generated $5.2 million in cash. For the three months ended March 31, 2021, cash flows from operating activities of $7.4 million were primarily comprised of net income plus the net effect of non-cash expenses, increases in accounts receivable, and decreases in accounts payable and prepaid expenses. During the first three months of 2021, we expended $7.4 million for the purchase of investments, $3.0 million for the addition of property and equipment and $3.2 million for dividends. During the same period, maturities and sales of investments generated $13.7 million in cash.

 

At March 31, 2022, we had working capital of $122.5 million, including $24.9 million in cash and cash equivalents and $35.4 million in short-term investments compared to working capital of $123.2 million at December 31, 2021. There was a $678 thousand decrease in working capital during the first three months of 2022.

 

We believe that our $77.8 million in cash, cash equivalents, short-term investments, and long-term investments, along with cash flows from operations and available borrowings of up to $75.0 million under our credit facility, will be sufficient to fund our cash requirements for at least the foreseeable future, including the costs associated with the expansion of one of our manufacturing facilities. We believe that our strong financial position would allow us to access equity or debt financing should that be necessary.

 

COVID-19 Impact

 

The COVID-19 pandemic continues to impact the global economy, cause market instability and uncertainty in the labor market, and put pressure on supply chains and healthcare systems, and it has impacted, and will likely continue to impact, our business. The pandemic continues to evolve and the full extent of its impact will depend on future developments, which are highly uncertain and cannot be determined at this time. We will continue to monitor the COVID-19 pandemic as well as resulting legislative and regulatory changes to manage our response and assess and seek to mitigate potential adverse impacts on our business. For additional discussion regarding the COVID-19 pandemic and our related risks, see Part I, Item 1A, “Risk Factors” included in our 2021 Form 10-K.

 

Forward-Looking Statements

 

Statements in this Management’s Discussion and Analysis and elsewhere in this Quarterly Report on Form 10-Q that are forward looking are based upon current expectations, and actual results or future events may differ materially. Therefore, the inclusion of such forward-looking information should not be regarded as a representation by us that our objectives or plans will be achieved. Such statements include, but are not limited to, our effective income tax rate for 2022, our ability to fund our cash requirements for the foreseeable future with our current assets, long-term investments, cash flow and borrowings under the credit facility, our access to equity and debt financing, and the impact of the COVID-19 pandemic on our business. Words such as “expects,” “believes,” “anticipates,” “intends,” “should,” “plans,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements contained herein involve numerous risks and uncertainties, and there are a number of factors that could cause actual results or future events to differ materially, including, but not limited to, the following: the risk that the COVID-19 pandemic leads to further material delays and cancellations of, or reduced demand for, procedures in which our products are utilized; curtailed or delayed capital spending by hospitals and other healthcare providers; disruption to our supply chain; closures of our facilities; delays in training; delays in gathering clinical evidence; diversion of management and other resources to respond to the COVID-19 pandemic; the impact of global and regional economic and credit market conditions on healthcare spending; the risk that the COVID-19 pandemic further disrupts local economies and causes economies in our key markets to enter prolonged recessions; changing economic, market and business conditions; acts of war or terrorism; the effects of governmental regulation; the impact of competition and new technologies; slower-than-anticipated introduction of new products or implementation of marketing strategies; implementation of new manufacturing processes or implementation of new information systems; our ability to protect our intellectual property; changes in the prices of raw materials; changes in product mix; intellectual property and product liability claims and product recalls; the ability to attract and retain qualified personnel; and the loss of, or any material reduction in sales to, any significant customers. In addition, assumptions relating to budgeting, marketing, product development and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic review which may cause us to alter our marketing, capital expenditures or other budgets, which in turn may affect our results of operations and financial condition. The forward-looking statements in this Quarterly Report on Form 10-Q are made as of the date hereof, and we do not undertake any obligation, and disclaim any duty, to supplement, update or revise such statements, whether as a result of subsequent events, changed expectations or otherwise, except as required by applicable law.

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk.

 

 

 

For the quarter ended March 31, 2022, we did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in our 2021 Form 10-K.

 

 

Item 4.

Controls and Procedures.

 

 

 

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2022. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting for the quarter ended March 31, 2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

    

 

16

 

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings.

 

We have no pending legal proceedings of the type described in Item 103 of Regulation S-K.

 

Item 1A. 

Risk Factors.

 

As of the date of this Report, there has been no material change in the risk factors described in our 2021 Form 10-K.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

 The table below sets forth information with respect to our purchases of our common stock during each month in the three month period ended March 31, 2022.

 

Period

 

 

 

 

 

Total Number of Shares Purchased

 

 

 

 

 

 

 

Average Price Paid per Share

 

 

 

 

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 

 

Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)

 

1/1/2022 to 1/31/2022

 

 

1,788

 

 

$621.06

 

 

 

1,788

 

 

 

172,402

 

2/1/2022 to 2/28/2022

 

 

3,849

 

 

 

606.93

 

 

 

3,849

 

 

 

168,553

 

3/1/2022 to 3/31/2022

 

 

--

 

 

 

--

 

 

 

--

 

 

 

168,553

 

Total

 

 

5,637

 

 

$611.41

 

 

 

5,637

 

 

 

168,553

 

 

(1)     On May 21, 2015, our Board of Directors approved a stock repurchase program pursuant to which we can repurchase up to 250,000 shares of our common stock from time to time in open market or privately-negotiated transactions. At March 31, 2022, we had repurchased 81,447 shares of our common stock authorized under the program approved in May 2015. Our stock repurchase program has no expiration date but may be terminated by our Board of Directors at any time.

 

17

Table of Contents

 

Item 6. Exhibits.

Exhibit Index

 

Exhibit Number

 

Description

31.1

 

Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer

31.2

 

Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer

32.1

 

Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002

32.2

 

Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes – Oxley Act Of 2002

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

18

Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Atrion Corporation

(Registrant)

    
Date: May 9, 2022By:/s/ David A. Battat

 

 

David A. Battat 
  

President and Chief Executive Officer

 
    

Date: May 9, 2022

By:

/s/ Jeffery Strickland

 

 

 

Jeffery Strickland

 

 

 

Vice President and Chief Financial Officer

 

 

 

(Principal Accounting and Financial Officer)

 

 

 

19