UTAH MEDICAL PRODUCTS INC (UTMD)

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Currency amounts are in thousands except per-share amounts and where noted.  Currencies are abbreviated as follows: the U.S. Dollar (USD or $), the Great Britain Pound (GBP or £), the Euro (EUR or €), the Australian Dollar (AUD or A$), the New Zealand Dollar (NZD) and the Canadian Dollar (CAD or C$).

The following comments should be read in conjunction with the accompanying financial statements.

Overview.

In 2024, income statement measures of Utah Medical Products, Inc. (Nasdaq: UTMD) consolidated financial performance were substantially lower than in 2023, as follows.

Despite 19% lower sales, profit margins in 4Q and year 2024 held up compared to 4Q and year 2023, for reasons described later in this report:

Because revenue results for any given three-month period in comparison with a previous three-month period are not indicative of comparative results for the year as a whole, UTMD believes that investors should focus primarily on the annual results in 2024. The $9.3 million consolidated worldwide (WW) decline in annual revenues in 2024, which drove income statement results overall, can be aggregated in the three following categories:

The OUS (Outside the U.S.) Distributor category (item 2 above) included UTMD’s China distributor for blood pressure monitoring kits for which 2024 shipments were $2.4 million compared to $4.0 million in 2023, representing $1.6 million (75%) of the $2.1 million decline in OUS Distributor revenue (excluding Filshie OUS distributors).

The decline in WW Filshie device revenues (item 3 above) can be divided into three parts:

OUS Direct Filshie revenues were sales by UTMD subsidiaries directly to medical facilities in the UK, France, Ireland, Canada, Australia and New Zealand. Foreign currency exchange (FX) rate changes had a minimally positive impact on 2024 USD revenues compared to 2023.

19

Despite additional cost-of-living adjustments for employees in 2024 and continued inflation in raw material costs, UTMD was nevertheless able to maintain its Gross Profit margin in 2024 by reducing manufacturing personnel, including closing down the assembly swing shift in Utah. The $1.6 million lower sales to UTMD’s China distributor for blood pressure monitoring kits, $1.3 million of which decline occurred in 4Q 2024 alone, actually helped UTMD’s average Gross Profit margin as that sales category has the lowest margin in UTMD’s business.

UTMD’s Operating Income margin was essentially the same in both years, despite retaining its critical mass of sales and marketing (S&M), product development (R&D) and general and administrative (G&A) resources at a higher cost. This occurred because the 2023 $3,684 G&A expense from 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., which was zero in 2024, offset the slightly lower Gross Profit margin as well as higher litigation expenses also captured in G&A expense.

On the other hand, non-operating income was lower than in the prior year as a result of a new excise tax levied on share repurchases in the U.S. and the fact that UTMD Ltd in Ireland received $232 less income in 2024 from renting unused warehouse space. EPS benefited from UTMD repurchasing over 8% of its shares during the year.

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 2024 compared to the end of 2023 and the end of 3Q 2024 follow:

Despite $4,260 in stockholder dividends and $19,968 in share repurchases in 2024, which reduced both cash and Stockholders’ Equity, measures of the Company’s liquidity and overall financial condition remained strong as of the end of 2024 compared to the end of 2023.  Despite year-end working capital declining $8,985, the Company’s current ratio improved to 25.6 at the end of 2024 from 22.6 at the end of 2023. As a result of continued strong positive cash flow from normal operations, 2024 year-end Stockholders’ Equity declined just $10,886 despite the $24,228 share repurchases and cash dividends. In comparison, UTMD paid $4,282 in stockholder cash dividends and made no share repurchases in 2023. The Company also used $231 in cash in 2024 along with $639 in 2023 to invest in new manufacturing equipment and fixtures, as well as maintaining existing Property, Plant and Equipment (PP&E) in good working order. Two-year net capital expenditures for PP&E were $511 less than depreciation.

Productivity of Fixed Assets and Working Capital Assets.

Assets.

Year-end 2024 total consolidated assets were $122,538 comprised of $96,330 in current assets, $9,763 in consolidated net PP&E and $16,445 in net intangible assets.  This compares to $135,458 total assets at the end of 2023 comprised of $106,269 in current assets, $10,551 in consolidated net PP&E and $18,637 in net intangible assets. Total asset turns (total consolidated sales divided by average total assets for the year) in 2024 were 32% compared to 39% in 2023, reflecting the large decrease in sales.

Current assets decreased $9,938 due to the $9,892 decrease in year-end cash and investments and $770 lower inventories, offset by $704 higher accounts and other receivables and $20 higher other current assets. Year-end 2024 and 2023 cash and investment balances were $82,976 and $92,869, representing 68% and 69% of total assets, respectively.  Net (after allowance for doubtful accounts) year-end trade accounts receivable (A/R) balances were $760 higher at the end of 2024 compared to 2023, despite 4Q 2024 sales $3,176 lower than in 4Q 2023. Ending 2024 average days in A/R were 40 based on 4Q trade sales, instead of 24 days at the end of 2023. A/R over 90 days from invoice date increased from 3.3% of total A/R at the end of 2023 to 6.4% at the end of 2024.  The Company believes any older A/R will be collected or are within its reserve balances for uncollectible amounts.  Inventories net of reserves for obsolescence at 2024 year-end were 8% lower from the end of 2023.

Working capital (current assets minus current liabilities) at year-end 2024 was 9% lower at $92,574 compared to $101,559 at year-end 2023, primarily due to using $19,968 cash for share repurchases. The end of 2024 working capital exceeds UTMD’s needs for normal operations in an uncertain economic environment, funding of future organic growth and timely payment of accrued tax liabilities. Management believes that, despite the negative impact on Return on Stockholders’ Equity, retaining a high cash balance increases its

20

likelihood of being able to allow for substantial funding of any future accretive acquisition without diluting stockholder interest, as well as repurchase of UTMD shares while paying a consistent dividend, and will leverage stockholder value in the long term.

December 31, 2024 net $9,763 total PP&E includes Utah, Ireland and England manufacturing molds, production tooling and equipment, test equipment, and product development laboratory equipment.  In addition, PP&E includes computers and software, warehouse equipment, furniture and fixtures, facilities and real estate for all five locations in Utah, Ireland, UK, Canada and Australia. Manufacturing facilities in Utah, Ireland and the UK are standalone buildings with a combined 220,000 square feet on 15 acres of land.  The distribution facilities in Australia and Canada with a combined 8,000 square feet are part of larger industrial condominiums.  Management estimates the fair market value of the five owned facilities to be at least $35 million excluding the contents, the fungible value of which increases stockholder enterprise value relative to most of UTMD’s industry peers which lease their facilities.

Compared to the end of 2023, ending 2024 net consolidated PP&E (depreciated book value of all fixed assets) declined $789 as a result of the combination of capital expenditures of $231, depreciation of $730 and the effect of foreign currency exchange (FX) rates on year-end foreign subsidiary asset balances as OUS fixed assets were depreciated further by a stronger USD.

The following end-of-year FX rates to USD were applied to assets and liabilities of each applicable foreign subsidiary:

The year-end 2024 net book value (after accumulated depreciation) of consolidated PP&E was 29% of purchase cost.  End-of-year PP&E turns (Net Sales divided by Net PP&E) was 4.2 in 2024 compared to 4.8 in 2023 due to 19% lower 2024 sales together with lower USD asset values of foreign subsidiaries. A future leverage in productivity of fixed assets which will not have to be further increased to support new business activity will be a source of incremental profitability.

Net intangible assets (after accumulated amortization) are comprised of the capitalized costs of obtaining patents and other intellectual property, as well as the value of identifiable intangible assets (IIA) and goodwill resulting from acquisitions. Net intangible assets were $16,445 (13% of total assets) at the end of 2024 compared to $18,637 (14% of total assets) at the end of 2023.  Per US GAAP, intangible assets are categorized as either 1) IIA, which are amortized over the estimated useful life of the assets, or 2) goodwill, which is not amortized or expensed until the associated economic value of the acquired asset becomes impaired. Those two categories of Femcare intangibles at year-end 2024 were net IIA of $2,415 and goodwill of $6,389. The accumulated amortization of Femcare IIA as of December 31, 2024 since the March 18, 2011 acquisition was $27,632. The remaining Femcare IIA will be fully amortized in March 2026. The goodwill portion of intangible assets resulting from the Femcare acquisition, which is not amortized, decreased $111 due to a weaker GBP at year-end, i.e. the different FX rate on fixed goodwill in GBP terms. In early 2019, UTMD acquired an additional $21,000 IIA from the purchase of the remaining life of exclusive U.S. distribution rights for the Filshie Clip System from CSI, all of which was amortized before the end of 2023. UTMD’s goodwill balance from prior acquisitions including Femcare, Columbia Medical, Gesco and Abcorp was $13,580 at the end of 2024.

Because the products associated with UTMD’s acquisitions of Columbia Medical in 1997, Gesco in 1998, Abcorp in 2004 and Femcare in 2011 continue to be viable parts of UTMD’s overall business, UTMD does not expect the current goodwill value associated with the four acquisitions to become impaired in 2025. Amortization of IIA was $2,065 in 2024 compared to $5,692 in 2023. The difference was mainly due to the CSI IIA becoming fully-amortized in October 2023, resulting in $3,684 lower 2024 operating expense. In other words, the 2024 non-cash amortization expense of CSI IIA was zero compared to $3,684 in 2023.  The Femcare IIA amortization expense was the same in both 2024 and 2023 at £1,589.  But because of a difference in FX rates, the 2024 non-cash amortization expense of Femcare IIA was $2,030 compared to $1,977 in 2023. The 2025 non-cash amortization expense (included as part of consolidated G&A operating expenses) of Femcare IIA will also be £1,589.

21

Liabilities.

As a reminder, payments for the Federal and State repatriation (REPAT) tax liability which resulted from the U.S. TCJA enacted in 2017 were 8% of the respective tax liability per year for the first five years, 15% in the sixth year, 20% in the seventh year and will be 25% in the eighth year. UTMD’s total REPAT tax liability was $2,792. Calendar year 2025 represents the eighth year, so $698 is the current liability at 25% of the total liability, the final payment year.

Year-end 2024 current liabilities were $953 lower than at the end of 2023 despite the $140 higher REPAT tax current liability for the ensuing year. Ending accrued liabilities were $1,020 lower due primarily to a $619 lower consolidated accrued income tax liability, $135 lower accrued employee profit-sharing bonuses, a $146 lower litigation expense reserve and $238 lower customer deposits. Total liabilities were $2,034 lower at the end of 2024 compared to the end of 2023. The resulting 2024 year-end total debt ratio (total liabilities/ total assets) was just 4% compared to 5% at the end of 2023.  UTMD has no bank debt.

The year-end 2024 Deferred Tax Liability balance created as a result of the fifteen-year deferred tax consequence of the amortization of Femcare’s IIA was $604, down from $1,120 at the end of 2023. The difference in the $516 book decline compared to the $508 tax effect of 25% (current UK tax rate) times $2,031 in 2024 amortization of Femcare IIA was due to the difference in the GBP FX rate on the remaining DTL balance at the end of 2024 as well as the USD/GBP currency exchange conversion of the IIA amortization during 2024. In addition to liabilities stated on the balance sheet, UTMD has operating lease and purchase obligations described in Note 14 and Note 12, respectively, to the financial statements.

Results of Operations.

a)Revenues.

Under accounting standards applicable for 2024, the Company believed that revenue should be recognized at the time of shipment as title generally passes to the customer at the time of shipment, or completion of services performed under contract.  Revenue recognized by UTMD is based upon documented arrangements and fixed contracts in which the selling price is fixed prior to acceptance and completion of an order.  Revenue from product or service sales is generally recognized at the time the product is shipped or service completed and invoiced, and collectability is reasonably assured.  Over 99% of UTMD’s revenue is recognized at the time UTMD ships a physical device to a customer’s designated location, where the selling price for the item shipped was agreed prior to UTMD’s acceptance and completion of the customer order. There are no post-shipment obligations which have been or are expected to be material to financial results.

There are circumstances under which revenue may be recognized when product is not shipped, which have met the criteria of ASC 606:  the Company provides engineering services, for example, design and production of manufacturing tooling that may be used in subsequent UTMD manufacturing of custom components for other companies.  This revenue is recognized when UTMD’s service has been completed according to a fixed contractual agreement.

Terms of sale are established in advance of UTMD’s acceptance of customer orders. In the U.S., Ireland, UK, France, Australia, New Zealand and Canada, UTMD generally accepts orders directly from and ships directly to end-user clinical facilities, as well as third party medical/surgical distributors, under UTMD’s Standard Terms and Conditions (T&C) of Sale. About 14% of UTMD’s 2024 domestic end-user sales went through third party med/surg distributors which contract separately with clinical facilities to provide purchasing, storage and scheduled delivery functions for the applicable facility.  UTMD’s T&C of Sale to end-user medical facilities are substantially the same in the U.S., Canada, Ireland, UK, France, Australia and New Zealand.

UTMD may allow separate discounted pricing agreements with a specific clinical facility or group of affiliated facilities based on volume of purchases.  Pricing agreements which are documented arrangements with clinical facilities, or groups of affiliated facilities, if applicable, are established in advance of orders accepted or shipments made.  For existing customers, past actual shipment volumes typically determine the fixed price by part number for the next agreement period. For new customers, the customer’s best estimate of volume is usually accepted by UTMD for determining the ensuing fixed prices for the agreement period. Prices are not adjusted after an order is accepted. For the sake of clarity, the separate pricing agreements with clinical facilities based on volume of purchases disclosure is not inconsistent with UTMD’s disclosure above that the selling price is fixed prior to the acceptance of a specific customer order.

UTMD’s global consolidated trade sales are comprised of domestic and OUS sales. Domestic sales in 2024 included 1) direct domestic sales, sales of finished devices to end-user facilities and med/surg distributors in the U.S., and 2) domestic OEM sales, sales of components or finished products, which may not be medical devices, to other companies for inclusion in their products.  OUS sales are export sales from UTMD in the

22

U.S. to customers outside the U.S. invoiced in USD, and sales from UTMD subsidiaries in Ireland, Canada, Australia and the UK which may be invoiced in EUR, GBP, CAD, AUD, NZD or USD.  The term “trade” means sales to customers which are not part of UTMD. Each UTMD manufacturing entity had 2024 intercompany sales of components and/or finished devices to other UTMD entities.

The following table shows the 2024 USD-denominated revenues by sales channel compared to 2023.  Because domestic sales in foreign countries were invoiced in native currencies, the comparison in USD terms includes the change in foreign currency translation (FX) rates. In other words, just the FX rate relative to the USD in 2024 compared to 2023 reduced Canada domestic sales by 1.3% and Australia sales by 0.9%. On the other hand, the FX rate difference increased Ireland domestic sales by 0.4%, UK domestic sales by 2.8% and France domestic sales by 0.1%.

In summary, UTMD total worldwide (WW) consolidated USD sales in 2024 at $40,903 were $9,321 (18.6%) lower than in 2023 at $50,224. The decline essentially resulted from the fact that 2024 WW shipments by UTMD to its largest OEM customer were $5,938 (68.8%) lower. Total U.S. domestic sales including OEM were $4,759 (16.9%) lower in 2024 at $23,444 compared to $28,204 in 2023. OUS sales including sales to foreign distributors were $4,562 (20.7%) lower at $17,458 compared to $22,020 in 2023.  Constant currency OUS sales were 21.2% lower.

Domestic Sales.

Domestic U.S. sales in 2024, which were $4,759 (16.9%) lower than in 2023, were $23,444 (57.3% of total consolidated sales) compared to $28,204 (56.2% of total sales) in 2023. All three categories of domestic sales were lower, led by U.S. OEM sales which were $3,857 (45.7%) lower than in 2023.  Domestic sales to UTMD’s biopharma OEM customer PendoTECH were $4,157 (64.7%) lower. Aggregate sales to 133 other U.S. OEM customers were $300 higher. Domestic Filshie device sales, representing 17.3% of total domestic sales, were $729 (15.3%) lower in 2024 compared to 2023.

Direct device sales other than Filshie, representing 63.2% of total domestic sales, were $173 (1.2%) lower in 2024 than in 2023. UTMD expects 2025 domestic direct sales of its well-established devices to increase at a low single-digit percentage rate.

Filshie 2024 sales in the U.S., which represented 17% of domestic direct sales, declined $729 (15%) compared to 2023. Although a partial change in practice favoring salpingectomies over tubal ligation for permanent sterilization has continued, an article in the “Green Journal” of the American College of Obstetrics and Gynecology lamented to physician members that patients are tending to rely more on social media than on informed input from their own doctors to make clinical choices. Consequently, there appears to be some negative impact on patient choice as a result of attorneys advertising for complainants under false pretenses on social media, which underscores the importance of winning the current product liability lawsuits. Nevertheless, UTMD expects U.S. Filshie device sales in 2025 will not decline as much as happened in 2024, based on the well-established safety and effectiveness of the device.

Domestic OEM sales in 2024 were $3,857 (45.7%) lower than in 2023, representing 20% of total U.S. domestic sales compared to 30% in 2023.  UTMD sold components and finished devices to 134 different U.S. companies in 2024 compared to 129 companies in 2023 for use in their product-market offerings.  Sales to 133 OEM customers excluding PendoTECH were $300 (+15%) higher.  U.S. sales to PendoTECH were $4,157 (65%) lower. UTMD’s largest OEM customer markets biopharmaceutical manufacturing control systems which previously exclusively utilized UTMD’s pressure monitoring sensors and other components.  The good news is that domestic sales to PendoTECH in 2024 were $2,266.  The bad news, looking forward to 2025, is

23

that UTMD expects domestic demand from this customer may decline another $2 million as it continues to integrate manufacturing of its own marketed products.

OUS USD-denominated sales in 2024 were $4,562 (20.7%) lower at $17,458 compared to $22,020 in 2023. Sales invoiced in foreign currencies, which were $12,911 when converted to USD, represented 74% of OUS sales and 32% of consolidated total sales. The stronger GBP and EUR currencies added $113 in net OUS USD-denominated foreign currency sales compared to USD sales using the prior year’s foreign currency exchange (FX) rates (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 2024 and 2023 for revenue purposes follow:

The combined weighted-average favorable FX impact on 2024 OUS sales was 0.7% (+0.3% of total consolidated 2024 sales).  In constant currency terms, OUS sales in 2024 were 21.2% lower than OUS sales in 2023. The portion of OUS sales invoiced in foreign currencies in USD terms was 32% of total consolidated 2024 USD sales compared to 30% in 2023. Including the impact of changed FX rates, OUS 2024 direct to end-user sales in USD terms were 7% higher in Ireland, 13% lower in Canada, 17% lower in France and 3% higher in the UK. Direct to end-user sales in Australia, which included New Zealand, were 18% lower. USD denominated sales to OUS distributors were $2,359 (18.9%) lower in 2024 than in 2023.

Seventy-four percent of (USD denominated) 2024 OUS sales were invoiced in foreign currencies compared to 68% in 2023. As a portion of total USD WW consolidated sales, 32% of UTMD’s USD-equivalent sales were invoiced in foreign currencies in 2023 compared to 30% in 2023. The GBP, EUR, AUD and CAD converted sales represented 9%, 18%, 2% and 2% of total 2024 consolidated USD sales, respectively.  This compares to 8%, 18%, 2% and 2% of total 2023 USD sales.

USD-denominated trade (excludes intercompany) sales of devices to OUS customers (excluding France) by UTMD’s Ireland facility (UTMD Ltd) were $7,081 in 2024 (34% lower) compared to $10,686 in 2023. Explaining 93% of the decline, Ireland OUS sales to PendoTECH were $1,781 (81%) lower and sales to UTMD’s largest distributor of BPM kits located in China were $1,587 (40%) lower.  In addition, UTMD Ltd also sold devices that it had manufactured directly to France in 2024 due to BREXIT, rather than by Femcare in the UK. USD-denominated sales to France in 2024 were $1,092 (17% lower) compared to $1,319 in 2023. The FX rate difference in 2024 relative to 2023 increased Ireland’s USD-denominated sales by $38.

In 2024, UTMD’s UK subsidiary, Femcare Ltd., had $3,470 trade sales of devices to domestic UK and certain international distributor customers, which was 4% higher compared to $3,347 in 2023. The FX rate difference increased the UK’s USD-denominated sales in 2024 by $91.

USD-denominated sales of devices to end-users in Australia and New Zealand by Femcare’s Australia distribution subsidiary (Femcare Australia Pty Ltd) were $866 (18% lower) in 2024 compared to $1,050 in 2023.  A weaker AUD in 2024 reduced USD-denominated Australia sales by $8.

UTMD’s Canada distribution subsidiary (Utah Medical Products Canada, Inc.) USD-denominated sales of devices to end-users in Canada in 2024 were $955 (13% lower) compared to $1,102 in 2023. A weaker CAD reduced Canada sales by $13.

UTMD groups its revenues into four general product categories: 1) obstetrics, comprised of labor and delivery management tools for monitoring fetal and maternal well-being, for reducing risk in performing difficult delivery procedures and for improving clinician and patient safety;  2) gynecology/ electrosurgery/ urology, comprised of tools for gynecological procedures associated primarily with cervical/ uterine disease including LETZ, endometrial tissue sampling, transvaginal uterine sonography, diagnostic laparoscopy, surgical contraception and other MIS procedures; specialty excision and incision tools; conservative urinary incontinence therapy devices; and urology surgical procedure devices;  3) neonatal critical care, comprised of devices that provide developmentally-friendly care to the most critically ill babies, including providing vascular access, enteral feeding, administering vital fluids, oxygen therapy while maintaining a neutral thermal environment, providing protection and assisting in specialized applications; and 4) blood pressure monitoring/ accessories/ other, comprised of specialized transducers and components as well as molded parts and assemblies sold on an OEM basis to other companies.  In these four categories, UTMD’s primary revenue contributors enjoy significant brand awareness by clinical users.

24

Global revenues by product category:

OUS revenues by product category:

*includes molded components and finished medical and non-medical devices sold to OEM customers.

Looking forward to 2025 revenues: WW sales to PendoTECH, UTMD’s largest OEM customer, which were $2.7 million in 2024, declined from $8.6 million in 2023 and from $11.6 million in 2022.  Since the current order backlog from PendoTECH for shipments in 2025 is just $151, not expecting additional orders, PendoTECH revenues may be an additional $2.5 million lower in 2025 compared to 2024.  WW Filshie revenues declined to $10.8 million in 2024 from $12.3 million in 2023.  Although a further decline in the U.S is expected in 2025 while lawsuits are unresolved, UTMD expects that increases OUS will offset that and 2025 Filshie revenues will be about the same as in 2024.  UTMD’s largest OUS distributor located in China, representing $2.4 million in 2024 sales of BPM kits manufactured in Ireland, has placed its annual order for 2025 which is the same as in 2024.  Expecting some low single-digit increases in UTMD’s remaining established business as well as initial modest direct sales of biopharma pressure sensors, not including release of any new products or price increases, management is projecting an overall revenue decrease of about $2 million (about 5%) in 2025 compared to 2024.

Gross Profit (GP).

UTMD’s 2024 consolidated GP, the surplus after subtracting costs of manufacturing, which includes purchasing and transporting raw materials, forming components, assembling, inspecting, testing, packaging and sterilizing products, from net revenues, was $24,143 (59.0% of sales) compared to $30,038 (59.8% of sales) in 2023. GP in 2024 was $5,895 (19.6%) lower with an 18.6% decrease in revenues.

The Gross Profit Margin (GPM), which is GP divided by sales, although still healthy, contracted 0.8 percentage points in 2024 due to the fact that many fixed manufacturing overhead costs increased while sales decreased. While the 2024 GP margin decline was less than projected in UTMD’s 2023 SEC Form 10-K, a further overhead margin dilution effect is expected in 2025 because management has decided to not reduce important manufacturing overhead resources in the same proportion as the expected 2025 decline in sales. Doing so would limit future UTMD capabilities to grow the Company. Although supplier costs for raw materials have continued to increase and the Company implemented further cost-of-living salary adjustments during 2024 for employees, management expects to be able to control the productivity of variable manufacturing costs in 2025 consistent with the past.  In addition, quality assurance costs included in manufacturing overhead are projected to be higher from implementing required clinical reviews under the new EU Medical Device Regulation for devices used OUS. Except on a selective basis after experiencing further variable cost increases, UTMD does not intend to increase prices to customers in 2025. The resulting 2025 GPM might be more than another full percentage point lower than in 2024, resulting in a decline in GP in the range of 7-9%.

UTMD’s Ireland subsidiary’s (UTMD Ltd’s) 2024 GP was EUR 6,283 (22.3% lower) compared to EUR 8,084 in 2023 when total EUR revenues, including direct sales to France and intercompany sales of devices manufactured in Ireland, were 21.6% lower. The associated GPMs were 58.4% in 2024 and 58.9% in 2023. Femcare UK GP was GBP 1,579 in both 2024 and 2023. The 2024 UK GPM was 55.7% compared to 55.3% in 2023 while UK GBP sales including intercompany revenues were 0.7% lower. Femcare Australia and Femcare Canada are simply distribution facilities for UTMD finished devices in their respective countries. GP is the result of subtracting intercompany purchase prices of devices, plus incoming freight, from revenues. Australia 2024 GP was AUD 623 (46.9% of sales) compared to AUD 841 (53.0% of sales) in 2023. Canada 2024 GP was CAD 538 (41.2% of sales) compared to CAD 874 (58.6% of sales) in 2023. The GPMs in both Australia and Canada were diluted not only by higher overhead costs on substantially lower sales, but also higher direct material costs from weaker currencies for devices purchased from the U.S., Ireland and the UK. In the U.S., GP was $13,991 (21.2% lower) in 2024 compared to $17,750 in 2023 when revenues including intercompany

25

sales were 16.7% lower. The U.S. GPM was 48.5% in 2024 compared to 51.2% in 2023. A summation of the above GP of each subsidiary will not yield UTMD’s consolidated total GP because of the elimination of profit in inventory for intercompany sales.

b)Operating Income.

Operating Income results from subtracting Operating Expenses from GP. For the year 2024, Operating Income was $13,594 compared to $16,777 in 2023, a 19.0% decrease. The $3,183 decrease in Operating Income was from a combination of $5,895 lower GP and $2,712 lower Operating Expenses.

The UTMD Ltd (Ireland) Operating Income margin in 2024 was 54.4% compared to 55.9% in 2023. Femcare UK’s Operating Income margin per US GAAP, which includes the IIA amortization expense of the 2011 acquisition, was negative in both 2024 and 2023.  Femcare Australia’s 2024 Operating Income margin was 23.6% compared to 32.2% in 2023.  Femcare Canada’s 2024 Operating Income margin was 22.4% compared to 41.8% in 2023. UTMD’s 2024 Operating Income margin in the U.S. was 33.1% compared to 23.5% in 2023.  For clarity, in 2023 the CSI IIA amortization expense (none in 2024) hit the U.S. Operating Income margin, and in both 2024 and 2023 the Femcare IIA amortization expense hit the Femcare UK Operating Income margin.

Operating expenses include sales and marketing (S&M) expenses, product development (R&D) expenses and general and administrative (G&A) expenses. Consolidated WW operating expenses were $10,549 (25.8% of sales) in 2024 compared to $13,261 (26.4% of sales) in 2023. The following table provides a comparison of operating expense categories, as well as further segmentation of G&A expenses:

Description of Operating Expense Categories:

i) S&M expenses:

S&M expenses in 2024 were $1,901 (4.6% of sales) compared to $1,685 (3.4% of sales) in 2023. The higher expenses were due to higher salaries from cost-of-living adjustments to salaries and a $148 increase in U.S. medical benefit claims. Consolidated OUS S&M expenses in 2024 compared to 2023 were increased by a net $3 from FX rate changes due primarily to a stronger GBP.

S&M expenses are the costs of communicating UTMD’s differences and product advantages, providing training and other customer service in support of the use of UTMD’s solutions, attending clinical meetings and medical trade shows, administering customer agreements, advertising, processing orders, shipping, and paying commissions to outside independent representatives. In markets where UTMD sells directly to end-users, which in 2023-2024 included the U.S., Ireland, UK, Australia, New Zealand, France and Canada, the largest components of S&M expenses were the cost of customer service required to timely process orders and the distribution costs associated with shipping products.

S&M expenses include all customer support costs including training. In general, training is not required for UTMD’s products since they are well-established and have been clinically widely used. Written “Instructions For Use” are packaged with all finished devices. Although UTMD does not have any explicit contracts with customers to provide training, it does provide hospital in-service and clinical training as required and reasonably requested.

26

UTMD promises prospective customers that it will provide, at no charge in reasonable quantities, electronic media and other instructional materials developed for the use of its products. UTMD provides customer support from offices in the U.S., Canada, Ireland, UK and Australia by telephone to answer user questions and help troubleshoot any user issues. Occasionally, on a case-by-case basis, UTMD may utilize the services of an independent practitioner to provide educational assistance to clinicians. All in-service and training expenses are routinely expensed as they occur.  Except for the consulting services of independent practitioners and occasional use of marketing consultants, all of these services are allocated from fixed S&M overhead costs. Historically, additional consulting costs have been immaterial to financial results, which is also UTMD’s expectation for the future.

ii) R&D expenses:

R&D expenses in 2024 were $813 (2.0% of sales) compared to $560 (1.1% of sales) in 2023. R&D expenses include the costs of investigating clinical needs, developing innovative concepts, testing concepts for viability, validating methods of manufacture and materials, completing any necessary premarketing clinical trials, regulatory documentation and other activities required for design control, responding to customer requests for product enhancements, and assisting manufacturing engineering on an ongoing basis in developing new processes or improving existing processes. Product development (R&D) expenses increased in 2024 primarily as a result of $222 spent for independent testing and validation of materials used in UTMD’s own biopharma sensors, and from cost-of-living adjustments for employees. R&D also continued to play a significant role in manufacturing process improvements and quality assurance. No new UTMD devices were launched in 2024.  UTMD projects R&D expenses in 2025 will be between 1% and 2% of revenues.

iii)  G&A expenses:

G&A expenses in 2024 were $7,835 (19.2% of sales) compared to $11,016 (21.9% of sales) in 2023. G&A expenses include the “front office” functional costs of executive management and outside directors, finance and accounting, corporate information systems, human resources, stockholder relations, corporate risk management, corporate governance, protection of intellectual property, amortization of identifiable intangibles and legal costs.  The table above helps identify certain specific categories of G&A expenses which might be of interest to stockholders.

The $3,181 net decrease in G&A expenses was due primarily to the completion in late 2023 of amortizing the $21,000 IIA from the 2019 purchase of the CSI exclusive U.S. distribution rights for the Filshie Clip System.  The final CSI IIA amortization expense in 2023 was $3,684, which was zero in 2024. In addition, accrued profit-sharing bonuses were $129 lower in proportion to the 2024 decline in Income Before Income Tax (EBT).  The $632 difference between that combined $3,813 reduction in 2024 G&A operating expenses, and the net total $3,181 reduction in G&A expenses was due to essentially to $479 higher litigation expenses, $31 higher (non-cash) stock option expense, $24 higher independent accounting and tax help as well as higher salaries (except the CEO) due to cost-of-living adjustments. A stronger GBP increased net foreign currency G&A expenses by $69, compared to what they would have been in 2023. This includes an FX rate change unfavorable USD impact of $53 (out of the $69 total) from the amortization of the 2011 Femcare acquisition IIA, which was £1,589 in both 2024 and 2023.

As stockholders likely remember, the non-cash IIA amortization expense related to the Filshie Clip System in 2023 included IIA from both the 2011 acquisition of Femcare Group Ltd and the 2019 purchase of the CSI exclusive U.S. distribution rights for the Filshie Clip System. The combined Filshie IIA amortization expense in 2023 was 11.3% of total WW consolidated sales ($5,661) compared to 5.0% in 2024 ($2,030) with no 2024 CSI IIA amortization expense.

The Femcare IIA amortization expense will continue at the same £397 per calendar quarter rate, which ends in 1Q 2026 (or until the value of any remaining IIA becomes impaired), subject to changes in the GBP FX rate when converted to USD.

Regarding the product liability litigation legal expenses looking forward, most of the active motion practice and discovery has been accomplished. Four cases have now been won on summary judgment and several other lawsuits were dismissed prior to the summary judgment phase.  Decisions on other summary judgment motions are pending and expected in 2025.  If any summary judgment motion is denied, the case must go to trial and that could drive up expenses significantly. UTMD believes that the chance of avoiding trial is significant in every case, and therefore its projections are based on expenses being about $200 lower in 2025 than in 2024

Excluding the non-cash IIA amortization expenses and litigation expenses, consolidated G&A operating expenses were $3,666 (9.0% of sales) in 2024 compared to $3,695 (7.4% of sales) in 2023.

27

In summary looking forward, with 5% lower revenues, more than a percentage point lower GPM and hope for $200 lower litigation expenses, UTMD management projects consolidated 2025 Operating Income of about $12 million, in the range of 11% less than in 2024.

c)Non-operating income/ Non-operating expense, and Income Before Taxes (EBT).

Non-operating income includes royalties from licensing UTMD’s technology, rent from leasing underutilized property to others, income earned from investing the Company’s excess cash and gains from the sale of assets.  Non-operating expense includes interest on bank loans, bank service fees, excise taxes and losses from the sale of assets. Also, the period-to-period remeasured value of EUR cash balances held in the UK, and GBP balances held in Ireland, generates a gain or loss which is booked at reporting period end as non-operating income or expense, as applicable.

Net non-operating income (combination of non-operating income and non-operating expense) was $3,208 in 2024 and $3,312 in 2023. Net non-operating income in 2024 would have been higher than in 2023 had UTMD not been assessed a $200 excise tax on share repurchases in 2024 which did not occur in 2023, combined with EUR 215 lower rent in Ireland than received in 2023. A description of components of UTMD’s non-operating income or expense follows:

1)  Interest Expense.  There was no interest expense in 2024 or 2023.  Absent an acquisition or very large repurchase of shares that requires new borrowing, UTMD does not expect any interest expense in 2025.

2)  Investment of excess cash.  Consolidated investment income (including gains and losses on sales of investments) was $3,367 in 2024 compared to $3,036 in 2023. Average cash balances were about $4 million higher in 2024 than in 2023, although average interest rates were somewhat lower. UTMD is projecting current interest rates to continue in 2025, leading to an increase in non-operating income when cash is not used to repurchase shares at an attractive price, or to acquire another entity or product line. UTMD has been continuing to repurchase shares during 1Q 2025. For purposes of providing an estimate of 2025 financial results, management has included the same interest income in 2025 as in 2024.

3)  Royalties.  Royalties in 2024 were $15 compared to $20 in 2023. Presently, there is only one arrangement which began in 2020 under which UTMD is receiving royalties on its technology.

4)  Gains/ losses from remeasured currency in bank accounts. UTMD recognized a $1 gain in 2024 compared to a $5 loss in 2023 from losses on remeasured foreign currency bank balances.  EUR currency cash balances in the UK, and GBP currency cash bank balances in Ireland, are subject to remeasured currency translation gains/ losses as a result of period-to-period changes in FX rates.

5)  Other non-operating income or expense.  Income received from renting unused warehouse space in Ireland and parking lot space in Utah for a cell phone tower, offset by bank fees, and other miscellaneous non-operating expenses resulted in net non-operating income of $14 in 2024 compared to a net non-operating income of $254 in 2023.

EBT results from adding net non-operating income or subtracting net non-operating expense from Operating Income. Consolidated EBT was $16,802 (41.1% of sales) in 2024 compared to $20,089 (40.0% of sales) in 2023.  In other words, despite the inflationary cost pressures diluting UTMD’s GPM and higher litigation expenses, the Company expanded its EBT Margin (EBT as a percentage of sales) with 18.6% lower sales, yielding just a 16.4% decrease in EBT. In short, 2024 lower operating expense resulting from lower IIA amortization expense offset lower gross profits from lower sales activity.  With much uncertainty surrounding the projections for income and expense above, UTMD management is estimating about a 12% decline in 2025 EBT compared to 2024.

The 2024 EBT of UTMD Ltd. (Ireland) was €5,648 (52.5% of sales) compared to €7,680 (56.0% of sales) in 2023. Ireland had a disproportionate decline in EBT because it manufactures and sells all of the DPT kits sold to UTMD’s China distributor, and it lost all of its 2023 PendoTECH demand in the last nine months of 2024. Femcare Ltd.’s (UK) 2024 EBT was (£2,815) compared to (£469) in 2023. Femcare Ltd. supports worldwide regulatory requirements in addition to, according to US GAAP, absorbing the IIA amortization expense of the 2011 Femcare Group acquisition. As the developer and legal manufacturer of the Filshie Clip System, Femcare Ltd. is the corporate entity ultimately liable for Filshie product liability claims. In 2024, Utah Medical Products, Inc (Utah corporation parent of Femcare Ltd) transferred the Filshie litigation expenses which were included in Utah’s 2023 EBT to Femcare Ltd. which explains the large year-to-year decline in UK EBT. On a consolidated financial basis, it makes no difference which corporate entity absorbs the expense, except in Net Income when income tax rates vary sovereignty to sovereignty. Femcare AUS’s 2024 EBT was AUD 364 (27.4% of sales) compared to AUD 544 (34.3% of sales) in 2023. Femcare Canada’s 2024 EBT was CAD 289 (22.1% of sales)

28

compared to CAD 620 (41.6% of sales) in 2023.  The EBT declines in both the Australia and Canada distribution entities were due to both lower Filshie device sales and lower profit margins. Since they purchase finished devices in EUR and USD from other UTMD entities, and their native currencies were weaker, their cost of goods sold increased.

EBITDA is a non-US GAAP metric that UTMD management believes is of interest to investors because it provides meaningful supplemental information to both management and investors that represents profitability performance without factoring in effects of financing, accounting decisions regarding non-cash expenses, capital expenditures or tax environments. If the Company were to need to borrow to pay for a major asset or acquisition, the projected EBITDA metric would be of primary interest to a lending institution to determine UTMD’s credit worthiness. Although the U.S. Securities and Exchange Commission advises that EBITDA is a non-GAAP metric, UTMD’s non-US GAAP EBITDA is the sum of the following elements in the table below, each of which is a US GAAP number:

In summary, UTMD’s 2024 non-US GAAP EBITDA declined 25.5% compared to 2023.  With the above projections for 2025 financial performance in mind, the non-US GAAP EBITDA metric in 2025 is expected to be in the range of $17-18 million.

d)Net Income, Earnings Per Share (EPS) and Return on Equity (ROE).

i) Net Income

Net Income results after subtracting a provision for estimated income taxes from EBT. UTMD’s Net Income in 2024 was $13,874 (33.9% of sales) compared to $16,635 (33.1% of sales) in 2023. The higher Net Income margin in 2024 was due to a higher EBT margin with the average consolidated income tax provision rate almost the same. UTMD’s average consolidated income tax provision rates were 17.4% in 2024 and 17.2% in 2023.

In general, year-to-year fluctuations in the combined average income tax provision rate will result from variation in EBT contribution from subsidiaries in jurisdictions with different corporate income tax rates. Taxes in foreign subsidiaries are based on taxable EBT in those sovereignties, which can be different from the contribution to consolidated EBT per US GAAP.  UTMD estimates, barring any new tax law changes which are currently unknown, assuming an adjusted EBT mix toward higher-taxed sovereignties, that its combined income tax rate for 2025 will be in the 19% range, yielding Net Income approximately 14% lower than in 2024.

The UK had a corporate income tax rate of 19% for 1Q 2023, followed by a 25% rate for the last nine months of 2023 and all of 2024.  The UK also allowed a tax deduction for sales of UK patented products which varied from year-to-year based on somewhat complicated rules which are sorted out for UTMD by independent UK tax specialists. The corporate income tax rate for AUS was 30% for both 2024 and 2023. The income tax rate for Canada was about 27.5% for both years. Profits of the Ireland subsidiary were taxed at a 12.5% rate on exported manufactured products, and a 25% rate on rental and other types of income including income from sales of medical devices in Ireland domestically. As UTMD stockholders likely remember, in the U.S., the Federal income tax rate was changed after 2017 to 21% from 34% prior to the 2017 Tax Cut and Jobs Act (TCJA).  Federal taxes are not 21% of U.S. EBT, however, as income taxes paid to the State are a deductible expense for Federal tax purposes, other expenses are not deductible and there remains an R&D tax credit along with other credits, not to mention a special GILTI tax related to foreign income and FDII tax credit related to profits on export sales. The 2024 Utah state income tax rate declined to 4.45% from 4.95% in 2023.

ii) Earnings Per Share (EPS)

EPS are Net Income divided by the number of shares of stock outstanding (diluted to take into consideration stock option awards which are “in the money,” i.e., have exercise prices below the applicable period’s weighted average market value).  Diluted EPS in year 2024 were $3.961 compared to $4.574 in 2023, a 13.4% decrease. The decrease in EPS was less than the 18.6% decrease in sales as a result of the higher Net Income margin and 2024 share repurchase. Diluted shares were 3,503,165 for the year 2024

29

compared to 3,637,071 in 2023. Dilution for “in the money” unexercised options for the year 2024 was zero shares compared to 8,303 shares in 2023. Actual outstanding common shares as of December 31, 2024 were 3,335,156. Because of the time-weighted calculation of lower diluted shares and continued share repurchases, UTMD expects the 2025 decline in EPS to be less than 10%, yielding a target of $3.60.

iii) ROE

Achieving a high ROE remains a key management objective for UTMD in order to grow without diluting stockholder interest. ROE is the quotient of Net Income divided by average Stockholders’ Equity, but more specifically it is the product of the Net Income margin, productivity of assets and financial leverage. UTMD’s high Net Income margin is the primary factor that continues to drive its ROE, with low financial leverage and decreasing asset productivity as cash balances rapidly grow. Cash dividends to stockholders and repurchase of shares, on the other hand, help in lowering average Stockholders’ Equity, reducing the denominator in calculating ROE. Building cash balances that increase Stockholders’ Equity, without proportionately increasing Net Income, reduces ROE. UTMD’s 2024 ROE before stockholder dividends was 11.3%.  In comparison, 2023 ROE was 13.7%.

The lower 2024 ROE compared to 2023 was the result of 16.6% lower Net Income coupled with 1.3% higher average Stockholders’ Equity. Despite a $24,228 reduction in 2024 from share repurchases and stockholder dividends, average Stockholders’ Equity was $122,870 compared to $121,284 in 2023. UTMD’s Stockholders’ Equity has more than doubled over the last twelve years to $117 million at the end of 2024, despite being reduced by $54 million in dividends plus $36 million in share repurchases over that same period of time. UTMD’s average ROE over the last 32 years was 24%.

Looking forward to 2025, management expects a continued decline in total sales compared to the prior year as sales to PendoTECH, which are apparently eventually going away, were still well more than $2 million in 2024 and the Filshie product liability litigation dark cloud remains not fully resolved.  A continued sales decline is expected to pressure UTMD’s GPM at least as much as one percentage point lower as a result of less absorption of fixed manufacturing overheads which are important resources to retain for the future. Hopefully, UTMD’s legal arguments will be persuasive in every remaining Filshie product liability case, and the Company will avoid going to trial. If so, it should reduce litigation expenses in 2025 by at least $200 relative to 2024. Based on those thoughts, although with a high level of uncertainty, management is estimating that UTMD’s consolidated revenues and EPS in 2025 will be about 5% lower and 10% lower, respectively, than in 2024. Notwithstanding the projections, UTMD will continue to operate at a high level of profitability and cash generation, and utilize its cash trove opportunistically to achieve an accretive acquisition or repurchase shares in a way that maximizes long-term stockholder value.

Liquidity and Capital Resources

Cash Flows.

Net cash provided by operating activities in 2024 totaled $14,831 compared to $22,281 in 2023. The three primary causes of the $7,450 lower net cash generation in 2024 compared to 2023, which together generated $9,493 less cash, were 1) $3,627 lower non-cash amortization of intangible assets, 2) $835 lower trade accounts receivable (A/R) at 2024 year-end rather than $2,270 higher A/R at year-end 2023, and 3) $2,761 lower Net Income.  Offsetting items that together generated $1,995 more cash in 2024 versus 2023 included 1) a $587 reduction in inventories versus a $671 inventory increase in 2023, 2) $383 lower decrease in accounts payable, and 3) $334 lower decrease in deferred income taxes.

In investing activities, during 2024 UTMD used $231 in capital expenditures to purchase new molds and manufacturing equipment and fixtures for expanded capabilities as well as to maintain and improve existing operating capabilities, compared to investing $639 in 2023. The 2024 expenditures were partly offset by $27 in proceeds from the sale of used equipment. Capital expenditures in 2024 were $500 less than depreciation. In 2024, UTMD also invested $5 in intangible assets.

In 2024 UTMD received $390 and issued 7,592 shares of stock upon the exercise of employee stock options. Option exercises in 2024 were at an average price of $51.39 per share. The Company received a $20 tax benefit from option exercises in 2024. UTMD repurchased 301,961 shares of its stock in the open market during 2024 at an average cost of $66.13 per share.  As a subsequent event in 2025 as of March 25, UTMD has repurchased another 53,340 shares of its stock in the open market at an average cost of $59.41 per share. During 2024 and to date in 2025, the Company repurchased almost 10% of outstanding shares.

In comparison, in 2023 UTMD received $117 and issued 1,758 shares of stock upon the exercise of employee stock options. Option exercises in 2023 were at an average price of $66.40 per share. The Company received a $12 tax benefit from option exercises in 2023. UTMD did not repurchase shares of its stock in the open market during 2023.

30

UTMD did not borrow in the years 2024 and 2023. Cash dividends paid to stockholders were $4,260 in 2024 compared to $4,282 in 2023. The amount of cash used for dividends was lower despite an approximate 2% higher dividend per share as a result of share repurchases.

Management believes that future income from operations and effective management of working capital will continue to provide the liquidity needed to finance internal growth plans.  In an uncertain economic environment, UTMD’s cash balances allow management to operate with the long-term best interest of stockholders in mind.  Planned 2025 capital expenditures for ongoing operations are expected to be less than depreciation of PP&E, although additional capital expenditure opportunities will be considered.

Management plans to opportunistically utilize cash not needed to support normal operations in one or a combination of the following: 1) in general, to continue to invest at opportune times in ways that will enhance future profitability; 2) to make additional investments in new technology and/or processes; and/or 3) to acquire a product line or company that will augment revenue and EPS growth and better utilize UTMD’s existing infrastructure.  If there are no better strategic uses for UTMD’s cash, the Company will continue to return cash to stockholders in the form of dividends and share repurchases when the stock appears undervalued.

Management's Outlook.

UTMD remains small compared to many other companies, but its employees are experienced and remain diligent in their work. UTMD’s passion is in providing differentiated clinical solutions that will help improve the outcomes of medical procedures and reduce health risks, particularly for women and their babies.

The safety, reliability and performance of UTMD’s medical devices are consistently high and represent significant clinical benefits while providing minimum total cost of care.  UTMD will continue to leverage its reputation as a device innovator and reliable manufacturer which will responsively take on challenges to work with clinicians who use its specialty devices.  In doing so, UTMD will continue to differentiate itself, especially from its commodity-oriented competitors. In 2025, UTMD plans to

1)exploit its pre-qualified status to introduce a line of high-pressure process control transducer configurations directly to biopharmaceutical manufacturers;

2)continue to leverage OUS distribution and manufacturing synergies by further integrating capabilities and resources in multinational operations;

3)focus on defending the proven safety and effectiveness of the Filshie Clip System in the U.S.;

4)introduce additional products helpful to clinicians through product development;

5)continue to achieve excellent overall financial operating performance despite a contraction in revenues;

6)utilize positive cash generation to continue providing cash dividends to stockholders and make open market share repurchases if/ when the UTMD share price seems undervalued; and

7)remain vigilant for affordable accretive acquisition opportunities which may be brought about by difficult economic conditions on small, innovative companies.

The Company has a fundamental focus to do an excellent job in meeting clinicians’ and patients’ needs, while providing stockholders with excellent returns.  In the combined form of cash dividends and share repurchases, UTMD “returned” $24,228 (175% of Net Income) in 2024 to stockholders compared to $4,282 (26% of Net Income) in 2023.

In 2024, the value of UTMD’s stock declined 27%, ending the year at $61.47/ share, while $1.20 in cash dividends/ share were paid to stockholders. The DJIA, S&P 500 and NASDAQ Composite (where UTMD is traded) indices were all higher in 2024, respectively by 13%, 23% and 29%.

In comparison in 2023, the value of UTMD’s stock declined 16%, ending the year at $84.22/ share, while $1.18 in cash dividends/ share were paid to stockholders. The DJIA, S&P 500 and NASDAQ Composite (where UTMD is traded) indices were all higher in 2023, respectively by 14%, 24% and 43%.

In contrast to the last two years’ performance, combining share price appreciation and a capital allocation strategy that includes opportunistic share repurchases with steadily growing quarterly cash dividends paid to stockholders since 2004, longer-term UTMD stockholders have experienced excellent returns. UTMD management is determined to recapture the longer-term performance.

Off Balance Sheet Arrangements

None

31

Contractual Obligations

The following is a summary of UTMD’s significant contractual obligations and commitments as of December 31, 2024:

Critical Accounting Policies and Estimates

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the reported amounts of revenues and expenses during the reporting period.

Management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Management has identified the following as the Company’s most critical accounting policies which require significant judgment and estimates. Although management believes its estimates are reasonable, actual results may differ from these estimates under different assumptions or conditions.

·Allowance for doubtful accounts: The majority of the Company’s receivables are with healthcare facilities and medical device distributors.  Although the Company has historically not had significant write-offs of bad debt, the possibility exists, particularly with foreign distributors where collection efforts can be difficult or in the event of widespread hospital bankruptcies.

·Inventory valuation reserves:  The Company strives to maintain inventory to 1) meet its customers’ needs and 2) optimize manufacturing lot sizes while 3) not tying-up an unnecessary amount of the Company’s capital increasing the possibility of, among other things, obsolescence. The Company believes its method of reviewing actual and projected demand for its existing inventory allows it to arrive at a fair inventory valuation reserve. While the Company has historically not had significant inventory write-offs, the possibility exists that one or more of its products may become unexpectedly obsolete for which a reserve has not previously been created. The Company’s historical write-offs have not been materially different from its estimates.

Accounting Policy Changes

The Company’s management has evaluated the recently issued accounting pronouncements through the filing date of these financial statements and has determined that the application of these pronouncements will not have a material impact on the Company’s financial position and results of operations.

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Currency amounts are in thousands except per-share amounts and where noted.  Currencies are abbreviated as follows: the U.S. Dollar (USD or $), the Great Britain Pound (GBP or £), the Euro (EUR or €), the Australian Dollar (AUD or A$), the New Zealand Dollar (NZD) and the Canadian Dollar (CAD or C$).

The following comments should be read in conjunction with the accompanying financial statements.

Overview.

In 2023, Utah Medical Products, Inc. (Nasdaq: UTMD) was able to achieve higher Net Income and Earnings Per Share (EPS) despite 4% lower consolidated total revenues caused by $3 million lower sales to its largest OEM customer.  A lower Gross Profit Margin from less absorption of manufacturing overhead costs together with ongoing challenges related to supply chain disruption and higher input costs from inflation, together with higher litigation costs, resulted in Operating Income, although very respectable at 33.4% of sales, that was 15% lower than in the prior year.  However, higher non-operating income together with a lower income tax provision rate offset the higher operating costs, allowing a UTMD record annual EPS of $4.57.

Changes in foreign currency exchange (FX) rates on sales and expenses, in contrast to recent prior years, did not have a significant impact on financial results in 2023.  Using the prior year’s FX rates, annual outside the U.S. (OUS) foreign currency sales would have been 1% lower and OUS operating expenses 1% lower.

Key profit margins (profits as a percentage of sales) in 2023 compared to 2022 follow:

Measures of the Company’s liquidity and overall financial condition improved as of the end of 2023 compared to the end of 2022 with year-end working capital up 21% and Stockholders’ Equity up 12% despite $4,282 in dividends paid to stockholders which reduced both cash and Stockholders’ Equity.  The improvement was the result of continued strong positive cash flow from normal operations.  In comparison, UTMD paid $3,163 in stockholder cash dividends and used another $2,495 cash for share repurchases in 2022.  The Company also used $639 in cash in 2023 along with $809 in 2022 to invest in new manufacturing equipment and fixtures, as well as maintaining existing Property, Plant and Equipment (PP&E) in good working order.  The two-year capital expenditures exceeded depreciation by $213.

19

Table of Contents

Productivity of Fixed Assets and Working Capital Assets.

Assets.

Year-end 2023 total consolidated assets were $135,458 comprised of $106,269 in current assets, $10,551 in consolidated net PP&E and $18,637 in net intangible assets.  This compares to $123,874 total assets at the end of 2022 comprised of $89,919 in current assets, $10,224 in consolidated net PP&E and $23,731 in net intangible assets. Total asset turns (total consolidated sales divided by average total assets for the year) in 2023 were 39% compared to 44% in 2022, as sales decreased while average assets (primarily cash) increased.

Current assets increased $16,350 due to the $17,817 increase in year-end cash and investments and $768 higher inventories, offset by $2,148 lower accounts and other receivables and $87 lower other current assets. Year-end 2023 and 2022 cash and investment balances were $92,869 and $75,052, representing 69% and 61% of total assets, respectively.  Net (after allowance for doubtful accounts) year-end trade accounts receivable (A/R) balances were $2,148 lower at the end of 2023 compared to 2022 due to 4Q 2023 sales $1,242 lower than in 4Q 2022, and average days in A/R of 24 days based on 4Q trade sales instead of 37 days at the end of 2022.  A/R over 90 days from invoice date declined from 4.2% of total A/R at the end of 2022 to 3.3% at the end of 2023.  The Company believes any older A/R will be collected or are within its reserve balances for uncollectible amounts.  Inventories net of reserves for obsolescence at 2023 year-end were 9% higher from the end of 2022.

Working capital (current assets minus current liabilities) at year-end 2023 was 21% higher at $101,559 compared to $83,959 at year-end 2022. Consistent with Federal and State rules, the TCJA repatriation tax current liability at the end of 2023 was $558 compared to $419 at the end of 2022, as the payment percentage ramps up at the end of the payout period. The end of 2023 working capital exceeds UTMD’s needs for normal operations in an uncertain economic environment, funding of future organic growth and timely payment of accrued tax liabilities, in addition to allowing for substantial funding of any future acquisition without diluting stockholder interest, as well as continued payment of stockholder dividends and repurchase of UTMD shares. Despite a negative impact on Return on Stockholders’ Equity of retaining a high cash balance, UTMD believes that in times of high economic uncertainty and change, maintaining substantial cash balances increases its likelihood of being able to take advantage of opportunities that will benefit stockholders in the longer term, and retain key resources that will help ensure UTMD’s continued excellent long-term performance.

December 31, 2023 net $10,552 total PP&E includes Utah, Ireland and England manufacturing molds, production tooling and equipment, test equipment, and product development laboratory equipment.  In addition, PP&E includes computers and software, warehouse equipment, furniture and fixtures, facilities and real estate for all five locations in Utah, Ireland, UK, Canada and Australia.  Manufacturing facilities in Utah, Ireland and the UK are standalone buildings with a combined 220,000 square feet on 15 acres of land.  The distribution facilities in Australia and Canada with a combined 8,000 square feet are part of larger industrial condominiums.  Management estimates the fair market value of the five owned facilities to be at least $35 million excluding the contents, the fungible value of which increases stockholder enterprise value relative to most of UTMD’s industry peers which lease their facilities.

Ending 2023 net consolidated PP&E (depreciated book value of all fixed assets) increased $328 as a result of the combination of capital expenditures of $639, depreciation of $623 and the effect of foreign currency exchange (FX) rates on year-end foreign subsidiary asset balances.

The following end-of-year FX rates to USD were applied to assets and liabilities of each applicable foreign subsidiary:

The year-end 2023 net book value (after accumulated depreciation) of consolidated PP&E was 31% of purchase cost.  End-of-year PP&E turns (Net Sales divided by Net PP&E) was 4.8 in 2023 compared to 5.1 in 2022 due to 4% lower 2023 sales and higher USD asset values of foreign subsidiaries, together with investment in new PP&E assets needed for the future which are not in use yet. A future leverage in productivity of fixed assets which will not have to be further increased to support new business activity will be a source of incremental profitability.

20

Table of Contents

Net intangible assets (after accumulated amortization) are comprised of the capitalized costs of obtaining patents and other intellectual property, as well as the value of identifiable intangible assets (IIA) and goodwill resulting from acquisitions. Net intangible assets were $18,637 (14% of total assets) at the end of 2023 compared to $23,731 (19% of total assets) at the end of 2022.  Per US GAAP, intangible assets are categorized as either 1) IIA, which are amortized over the estimated useful life of the assets, or 2) goodwill, which is not amortized or expensed until the associated economic value of the acquired asset becomes impaired. Those two categories of Femcare intangibles at year-end 2023 were net IIA of $4,561 and goodwill of $6,500. The accumulated amortization of Femcare IIA as of December 31, 2023 since the March 18, 2011 acquisition was $26,088. The remaining Femcare IIA will be fully amortized in 2 more years. The goodwill portion of intangible assets resulting from the Femcare acquisition, which is not amortized, increased $338 due to a stronger GBP at year-end, i.e. the different FX rate on fixed goodwill in GBP terms. In early 2019, UTMD acquired an additional $21,000 IIA from the purchase of the remaining life of exclusive U.S. distribution rights for the Filshie Clip System from CSI, all of which has now been amortized through 2023. UTMD’s goodwill balance from prior acquisitions including Femcare, Columbia Medical, Gesco and Abcorp was $13,692 at the end of 2023.

Because the products associated with UTMD’s acquisitions of Columbia Medical in 1997, Gesco in 1998, Abcorp in 2004 and Femcare in 2011 continue to be viable parts of UTMD’s overall business, UTMD does not expect the current goodwill value associated with the four acquisitions to become impaired in 2024. Amortization of IIA was $5,692 in 2023 compared to $6,417 in 2022. The difference was mainly due to the CSI IIA becoming fully-amortized in October 2023, resulting in $737 lower 2023 expense. The 2023 non-cash amortization expense of CSI IIA was $3,684 compared to $4,421 in 2022.  The Femcare IIA amortization expense was the same in both 2023 and 2022 at £1,589.  But because of a difference in FX rates, the 2023 non-cash amortization expense of Femcare IIA was $1,977 compared to $1,965 in 2022.  The 2024 non-cash amortization expense (included as part of consolidated G&A operating expenses) of Femcare IIA will also be £1,589, or $2,002 if the USD/GBP average FX rate is 1.26.  In other words, UTMD expects the GBP to be stronger against the USD in 2024 than it was in 2023.

Liabilities.

As a reminder, payments for the Federal and State repatriation (REPAT) tax liability which resulted from the U.S. TCJA enacted in 2017 were 8% of the respective tax liability per year for the first five years, 15% in the sixth year, and will be 20% in the seventh year and 25% in the eighth year.  UTMD’s total REPAT tax liability was $2,792. Calendar year 2024 represents the seventh year, so $558 is the current liability at 20% of the total liability, and $698 is the long-term REPAT tax liability to be paid in 2025, representing the remaining 25%.

Year-end 2023 current liabilities were $1,250 lower than at the end of 2022. Ending accrued liabilities were $940 lower due primarily to $781 lower customer deposits. Total liabilities were $2,475 lower at the end of 2023 compared to the end of 2022. The resulting 2023 year-end total debt ratio was just 5% compared to 8% at the end of 2022.

The year-end 2023 Deferred Tax Liability balance created as a result of the fifteen-year deferred tax consequence of the amortization of Femcare’s IIA was $1,120, down from $1,513 at the end of 2022. The difference in the $393 decline compared to the $494 tax effect of 25% (current UK tax rate) times $1,977 in 2023 amortization of IIA was due to the difference in the GBP FX rate on the remaining DTL balance at the end of 2023 as well as the USD/GBP currency exchange conversion of the IIA amortization during 2023. In addition to liabilities stated on the balance sheet, UTMD has operating lease and purchase obligations described in Note 14 and Note 12, respectively, to the financial statements.

Results of Operations.

a)Revenues.

Under accounting standards applicable for 2023, the Company believed that revenue should be recognized at the time of shipment as title generally passes to the customer at the time of shipment, or completion of services performed under contract.  Revenue recognized by UTMD is based upon documented arrangements and fixed contracts in which the selling price is fixed prior to acceptance and completion of an order.  Revenue from product or service sales is generally recognized at the time the product is shipped or service completed and invoiced, and collectability is reasonably assured.  Over 99% of UTMD’s revenue is recognized at the time UTMD ships a physical device to a customer’s designated location, where the selling price for the item shipped was agreed prior to UTMD’s acceptance and completion of the customer order. There are no post-shipment obligations which have been or are expected to be material to financial results.

21

Table of Contents

There are circumstances under which revenue may be recognized when product is not shipped, which have met the criteria of ASC 606:  the Company provides engineering services, for example, design and production of manufacturing tooling that may be used in subsequent UTMD manufacturing of custom components for other companies.  This revenue is recognized when UTMD’s service has been completed according to a fixed contractual agreement.

Terms of sale are established in advance of UTMD’s acceptance of customer orders. In the U.S., Ireland, UK, France, Australia and Canada since the beginning of 2017, UTMD has generally accepted orders directly from and shipped directly to end-user clinical facilities, as well as third party medical/surgical distributors, under UTMD’s Standard Terms and Conditions (T&C) of Sale. About 13% of UTMD’s domestic end-user sales went through third party med/surg distributors which contract separately with clinical facilities to provide purchasing, storage and scheduled delivery functions for the applicable facility.  UTMD’s T&C of Sale to end-user medical facilities are substantially the same in the U.S., Canada, Ireland, UK, France, Australia and New Zealand.

UTMD may allow separate discounted pricing agreements with a specific clinical facility or group of affiliated facilities based on volume of purchases.  Pricing agreements which are documented arrangements with clinical facilities, or groups of affiliated facilities, if applicable, are established in advance of orders accepted or shipments made.  For existing customers, past actual shipment volumes typically determine the fixed price by part number for the next agreement period. For new customers, the customer’s best estimate of volume is usually accepted by UTMD for determining the ensuing fixed prices for the agreement period. Prices are not adjusted after an order is accepted. For the sake of clarity, the separate pricing agreements with clinical facilities based on volume of purchases disclosure is not inconsistent with UTMD’s disclosure above that the selling price is fixed prior to the acceptance of a specific customer order.

UTMD’s global consolidated trade sales are comprised of domestic and OUS sales. Domestic sales in 2023 included 1) direct domestic sales, sales of finished devices to end-user facilities and med/surg distributors in the U.S., and 2) domestic OEM sales, sales of components or finished products, which may not be medical devices, to other companies for inclusion in their products.  OUS sales are export sales from UTMD in the U.S. to customers outside the U.S. invoiced in USD, and sales from UTMD subsidiaries in Ireland, Canada, Australia and the UK which may be invoiced in EUR, GBP, CAD, AUD, NZD or USD.  The term “trade” means sales to customers which are not part of UTMD. Each UTMD manufacturing entity had 2023 intercompany sales of components and/or finished devices to other UTMD entities.

The following table shows the 2023 USD-denominated revenues by sales channel compared to 2022.  Because domestic sales in foreign countries were invoiced in native currencies, the comparison in USD terms includes the change in foreign currency translation (FX) rates. In other words, just the FX rate relative to the USD in 2023 compared to 2022 reduced Canada domestic sales by 3.6% and Australia sales by 3.9%. On the other hand, the FX rate difference increased Ireland domestic sales by 3.0%, UK domestic sales by 1.2% and France domestic sales by 2.6%.

In summary, UTMD total worldwide (WW) consolidated USD sales in 2023 at $50,224 were $2,057 (4%) lower than in 2022 at $52,281. The decline essentially resulted from the fact that 2023 WW shipments by UTMD to its largest OEM customer were $2,925 (25%) lower. Total U.S. domestic sales including OEM were $3,767 (11.8%) lower in 2023 at $28,204 compared to $31,971 in 2022. On the other hand, OUS sales including sales to foreign distributors were up $1,710 (+8.4%) at $22,020 compared to $20,310 in 2022.  Constant currency OUS sales were up 7.6%.

Domestic Sales.

Domestic U.S. sales in 2023, which were $3,767 (11.8%) lower than in 2022, were $28,204 (56.2% of total sales) compared to $31,971 (61.2% of total sales) 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. Aggregate sales to 128 other U.S. OEM customers were $143 higher. Domestic Filshie device sales, representing 17% of total domestic sales, were $470 (9.0%) lower in 2023 compared to 2022.

22

Table of Contents

Direct device sales other than Filshie, representing 53% of total domestic sales, were $859 (5.4%) lower in 2023 than in 2022. In this category, domestic neonatal device sales alone were $866 lower, predominantly in 2Q 2023 as a result of continued raw materials and sterilization supply chain disruption. The nature of NICU sales is low volume, specialized configuration devices for which hospitals need quick delivery based on their changing patient needs. If preferred devices are unavailable for quick delivery, a hospital NICU must find a substitute to meet immediate needs, and those sales are lost to UTMD.  This is what happened especially in early 2023 when UTMD could not obtain medical grade silicone from a validated supplier, and twice in 2023 when its contract sterilizer had to shut down its operations. UTMD expects 2024 domestic direct sales of its well-established devices to increase at a low single-digit percentage rate.

Filshie sales have not recovered as well as the other domestic sales categories since the COVID-19 pandemic. There appears to be some negative impact on patient choice as a result of attorneys advertising on social media. Nevertheless, UTMD expects U.S. Filshie device sales in 2024 will remain about the same as in 2023 based on surgeons’ understanding of the safety and effectiveness of the device.

Domestic OEM sales in 2023 were 30% of total U.S. domestic sales compared to 34% in 2022.  UTMD sold components and finished devices to 129 different U.S. companies in 2023 compared to 146 different companies in 2022, for use in their product-market offerings.  Sales to UTMD’s largest domestic OEM customer represented 76% of total domestic OEM sales in 2023 compared to 83% of total domestic OEM sales in 2022. UTMD’s largest OEM customer markets biopharmaceutical manufacturing control systems which previously exclusively utilized UTMD’s pressure monitoring sensors and other components.  But in 2023, domestic sales to this customer declined $2.6 million domestically. Looking forward to 2024, UTMD expects domestic demand from this customer may decline another $3.7 million as it seeks to vertically integrate manufacturing of its products.

OUS USD-denominated sales in 2023 were $1,710 (+8.4%) higher at $22,020 compared to $20,310 in 2022. OUS sales in all product categories were higher.  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 net 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:

The combined weighted-average favorable FX impact on 2023 foreign currency OUS sales was 1.1%, increasing reported USD sales by $166 (+0.3% of total consolidated 2023 sales) relative to the same foreign currency sales in 2022.  In constant currency terms, OUS sales in 2023 were 7.6% higher 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.

Sixty-eight percent of (USD denominated) 2023 OUS sales were invoiced in foreign currencies compared to 64% in 2022. As a portion of total USD WW consolidated sales, 30% of UTMD’s USD-equivalent sales were invoiced in foreign currencies in 2023 compared to 25% in 2022. The GBP, EUR, AUD and CAD converted sales represented 8%, 18%, 2% and 2% of total 2023 USD sales, respectively.  This compares to 6%, 14%, 2% and 3% of total 2022 USD sales.

USD-denominated trade (excludes intercompany) sales of devices to OUS customers (excluding France) by UTMD’s Ireland facility (UTMD Ltd) were $10,686 in 2023 (13% higher) compared to $9,478 in 2022.  In addition, UTMD Ltd also sold devices that it had manufactured directly to France in 2023 due to BREXIT, which earlier were sold to Femcare Ltd in the UK on an intercompany basis and then sold by Femcare Ltd directly to French medical facilities. USD-denominated sales to France in 2023 were $1,319 (7% higher) compared to $1,235 in 2022.   The total FX rate difference in 2023 relative to 2022 increased Ireland’s USD-denominated sales by $244.

In 2023, UTMD’s UK subsidiary, Femcare Ltd., had $3,347 trade sales of devices to domestic UK and certain international distributor customers, which was 20% higher compared to $2,781 in 2022. The total FX rate change increased the UK’s USD-denominated sales in 2023 by $10.

23

Table of Contents

USD-denominated sales of devices to end-users in Australia and New Zealand by Femcare’s Australia distribution subsidiary (Femcare Australia Pty Ltd) were $1,050 (17% lower) in 2023 compared to $1,267 in 2022.  A weaker AUD in 2023 reduced USD-denominated Australia sales by $46.

UTMD’s Canada distribution subsidiary (Utah Medical Products Canada, Inc.) USD-denominated sales of devices to end-users in Canada were $1,102 (15% lower) compared to $1,294 in 2022. A weaker CAD reduced Canada sales by $43.

UTMD groups its sales into four general product categories: 1) obstetrics, comprised of labor and delivery management tools for monitoring fetal and maternal well-being, for reducing risk in performing difficult delivery procedures and for improving clinician and patient safety;  2) gynecology/ electrosurgery/ urology, comprised of tools for gynecological procedures associated primarily with cervical/ uterine disease including LETZ, endometrial tissue sampling, transvaginal uterine sonography, diagnostic laparoscopy, surgical contraception and other MIS procedures; specialty excision and incision tools; conservative urinary incontinence therapy devices; and urology surgical procedure devices;  3) neonatal critical care, comprised of devices that provide developmentally-friendly care to the most critically ill babies, including providing vascular access, enteral feeding, administering vital fluids, oxygen therapy while maintaining a neutral thermal environment, providing protection and assisting in specialized applications; and 4) blood pressure monitoring/ accessories/ other, comprised of specialized transducers and components as well as molded parts and assemblies sold on an OEM basis to other companies.  In these four categories, UTMD’s primary revenue contributors enjoy significant brand awareness by clinical users.

Global revenues by product category:

OUS revenues by product category:

* includes molded components and finished medical and non-medical devices sold to OEM customers.

Looking forward to 2024, UTMD’s largest OEM customer representing $8.6 million in 2023 WW consolidated revenues, including 76% of $8,446 total U.S. OEM sales and 22% of Ireland’s $10,178 international distributor sales, has not provided visibility for demand for the last half of 2024, despite knowledge of significant lead times required for UTMD to obtain necessary custom raw materials. Consequently, UTMD management is conservatively projecting another $5.5 million reduction in annual sales to this OEM customer in 2024. Worst case would be a $6.5 million decline if no more orders were placed in 2024.  In addition, UTMD’s largest OUS distributor, located in China, representing $4.0 million 2023 sales of BPM kits manufactured in Ireland, has placed an annual order for 2024 which is $1.6 million lower than in 2023.  On the basis of these two largest 2023 customers, if net other revenues are flat, 2024 revenues would be about $7.1 million lower than in 2023.

Another key to 2024 sales results will be retaining U.S. Filshie device sales at a similar level as in 2023 with the continuing cloud of unresolved product liability lawsuits. UTMD prefers to not raise prices in 2024, given cost pressures on U.S. hospitals which are dealing with open U.S. immigration.  In summary, with a higher level of uncertainty than in the recent past, management’s best estimate at this time is that 2024 consolidated WW revenues may be in the range of $42 to $43 million, a 14-16% decline. This projection does not include UTMD’s potential success in entering the biopharmaceutical manufacturing controls market directly, or acquiring another source of revenues not currently in UTMD’s portfolio.

24

Table of Contents

b)Gross Profit (GP).

UTMD’s 2023 consolidated GP, the surplus after subtracting costs of manufacturing, which includes purchasing and transporting raw materials, forming components, assembling, inspecting, testing, packaging and sterilizing products, from net revenues, was $30,038 (59.8% of sales) compared to $32,196 (61.6% of sales) in 2022. GP in 2023 was $2,158 (6.7%) lower with a 3.9% decrease in revenues.

The Gross Profit Margin (GPM), which is GP divided by sales, although still very heathy, contracted 1.4 percentage points in 2023 due to the fact manufacturing overhead costs increased while sales decreased.  This overhead dilution effect will continue in 2024, as happened during the COVID-19 pandemic in 2020 when sales declined, because management has decided to not reduce important manufacturing overhead resources in the same proportion as the expected decline in sales. Doing so would sacrifice future UTMD capabilities to grow the Company. UTMD generally did not increase prices after February 2023, except on a specific case-by-case basis for custom OEM work. Although supplier costs for raw materials have continued to increase while the Company also implemented further cost-of-living salary adjustments during 2023 for direct labor employees, management expects to be able to control the productivity of variable manufacturing costs in 2024 consistent with the past after severance is paid for some employees.  In addition, quality assurance costs included in manufacturing overhead are projected to be substantially higher from implementing required clinical reviews under the new Medical Device Regulation for devices used OUS. The resulting 2024 GPM might be five percentage points lower than in 2023, resulting in a decline in GP in the range of 20-23%.

UTMD’s Ireland subsidiary’s (UTMD Ltd’s) 2023 GP was EUR 8,084 compared to EUR 8,538 in 2022. The associated GPMs were 58.9% in 2023 and 60.0% in 2022. Femcare UK 2023 GP was GBP 1,579 compared to GBP 1,297 in 2022. The 2023 UK GPM was 55.3% compared to 52.0% in 2022. A substantial increase in UK Filshie device sales diluted UK manufacturing overhead expense, as UK manufacturing overhead costs are relatively fixed. Femcare Australia and Femcare Canada are simply distribution facilities for UTMD finished devices in their respective countries. GP is the result of subtracting intercompany purchase prices of devices, plus incoming freight, from revenues. Australia 2023 GP was AUD 841 (53.0% of sales) compared to AUD 940 (51.4% of sales) in 2022. Canada 2023 GP was CAD 874 (58.6% of sales) compared to CAD 870 (51.7% of sales) in 2022. In the U.S., GP was $17,750 in 2023 compared to $20,699 in 2022. The U.S. GPM was 51.2% in 2023 compared to 54.8% in 2022. A summation of the above GP of each subsidiary will not yield UTMD’s consolidated total GP because of elimination of profit in inventory of intercompany sales.

25

Table of Contents

c)Operating Income.

Operating Income results from subtracting Operating Expenses from GP. For the year 2023, Operating Income was $16,777 compared to $19,790 in 2022, a 15.2% decrease. The $3,012 decrease in Operating Income was from a combination of $2,158 lower GP and $854 higher Operating Expenses.

The UTMD Ltd (Ireland) Operating Income margin in 2023 was 55.9% compared to 57.2% in 2022.  Femcare UK’s Operating Income margin per US GAAP, which includes the IIA amortization expense of the 2011 acquisition, was negative in both 2023 and 2022.  Femcare Australia’s 2023 Operating Income margin was 32.2% compared to 30.9% in 2022.  Femcare Canada’s 2023 Operating Income margin was 41.8% compared to 37.3% in 2022. UTMD’s 2023 Operating Income margin in the U.S. was 23.5% compared to 31.2% in 2022.  For clarity, the CSI IIA amortization expense hit the U.S. Operating Income margin, and the Femcare IIA amortization expense hit the Femcare UK Operating Income margin.

Operating expenses include sales and marketing (S&M) expenses, product development (R&D) expenses and general and administrative (G&A) expenses. Consolidated WW operating expenses were $13,261 (26.4% of sales) in 2023 compared to $12,407 (23.7% of sales) in 2022. The following table provides a comparison of operating expense categories, as well as further segmentation of G&A expenses:

Description of Operating Expense Categories:

i) S&M expenses:

S&M expenses in 2023 were $1,685 (3.4% of sales) compared to $1,507 (2.9% of sales) in 2022. The higher expenses were primarily due to higher salaries from cost-of-living adjustments. Consolidated OUS S&M expenses in 2023 compared to 2022 were not affected by FX rate changes as stronger EUR and GBP currency expenses were offset by weaker CAD and AUD expenses.

S&M expenses are the costs of communicating UTMD’s differences and product advantages, providing training and other customer service in support of the use of UTMD’s solutions, attending clinical meetings and medical trade shows, administering customer agreements, advertising, processing orders, shipping, and paying commissions to outside independent representatives. In markets where UTMD sells directly to end-users, which in 2022-2023 included the U.S., Ireland, UK, Australia, New Zealand, France and Canada, the largest components of S&M expenses were the cost of customer service required to timely process orders and the distribution costs associated with shipping products.

S&M expenses include all customer support costs including training. In general, training is not required for UTMD’s products since they are well-established and have been clinically widely used. Written “Instructions For Use” are packaged with all finished devices. Although UTMD does not have any explicit contracts with customers to provide training, it does provide hospital in-service and clinical training as required and reasonably requested.

26

Table of Contents

UTMD promises prospective customers that it will provide, at no charge in reasonable quantities, electronic media and other instructional materials developed for the use of its products. UTMD provides customer support from offices in the U.S., Canada, Ireland, UK and Australia by telephone to answer user questions and help troubleshoot any user issues. Occasionally, on a case-by-case basis, UTMD may utilize the services of an independent practitioner to provide educational assistance to clinicians. All in-service and training expenses are routinely expensed as they occur.  Except for the consulting services of independent practitioners and occasional use of marketing consultants, all of these services are allocated from fixed S&M overhead costs. Historically, additional consulting costs have been immaterial to financial results, which is also UTMD’s expectation for the future.

ii) R&D expenses:

R&D expenses in 2023 were $560 (1.1% of sales) compared to $493 (0.9% of sales) in 2022. R&D expenses include the costs of investigating clinical needs, developing innovative concepts, testing concepts for viability, validating methods of manufacture, completing any necessary premarketing clinical trials, regulatory documentation and other activities required for design control, responding to customer requests for product enhancements, and assisting manufacturing engineering on an ongoing basis in developing new processes or improving existing processes. Product development (R&D) expenses increased as a result of cost-of-living adjustments. R&D also played a significant role in manufacturing process improvements. No new UTMD devices were launched in 2023.  Due to stringent materials validation requirements for the biopharmaceutical manufacturing industry, UTMD projects R&D expenses in 2024 will be more than 40% higher than in 2023 and represent approximately 2% of revenues.

iii)  G&A expenses:

G&A expenses in 2023 were $11,016 (21.9% of sales) compared to $10,407 (19.9% of sales) in 2022. G&A expenses include the “front office” functional costs of executive management and outside directors, finance and accounting, corporate information systems, human resources, stockholder relations, corporate risk management, corporate governance, protection of intellectual property, amortization of identifiable intangibles and legal costs.  The table above helps identify certain specific categories of G&A expenses which might be of interest to stockholders.

The increase in G&A expenses was due to $990 higher U.S. litigation costs, as well as higher salaries (except the CEO) due to cost-of-living adjustments.  Stronger EUR and GBP relative to the USD increased net foreign currency G&A expenses by $30, compared to what they would have been in 2022.  This includes an FX rate change unfavorable USD impact of $24 (out of the $30 total) from the amortization of Femcare acquisition IIA, which was £1,589 in both 2023 and 2022.

As stockholders likely remember, the non-cash IIA amortization expense related to the Filshie Clip System includes IIA from both the 2011 acquisition of Femcare Group Ltd and the 2019 purchase of the CSI exclusive U.S. distribution rights for the Filshie Clip System. The combined IIA amortization expense in 2023 was 11.3% of total WW consolidated sales ($5,661) compared to 12.2% in 2022 ($6,386).  The decline in percent of sales was due to the completion of the CSI IIA amortization expense in October 2023.

The Femcare IIA amortization expense will continue at the same £397 per calendar quarter rate ending in 1Q 2026 (or until the value of any remaining IIA becomes impaired), subject to changes in the FX rate when converted to USD.

Excluding the non-cash Femcare and CSI IIA amortization expenses, UTMD consolidated operating expenses were $7,599 (15.1% of sales) in 2023 compared to $6,021 (11.5% of sales) in 2022.  The difference was mainly due to $990 higher litigation expenses.  Without the IIA amortization and litigation expenses, UTMD consolidated operating expenses were $5,940 (11.8% of sales) in 2023 compared to $5,351 (10.2% of sales) in 2022.

As none of the U.S. Filshie product liability lawsuits has gone to trial yet, and UTMD’s summary judgement motions remain undecided, projecting 2024 litigation expenses remains difficult if not impossible.  With that said, for purposes of creating a conservative operating plan, management is projecting $2,432 in 2024 litigation expenses compared to $1,660 in 2023.

In summary, with lower revenues, a lower GPM, higher litigation and R&D expenses, offset by the lack of amortization expense of CSI identifiable intangible assets completed in 2023, management projects 2024 Operating Income 24-27% lower than in 2023.

d)Non-operating income/ Non-operating expense, and Income Before Taxes (EBT).

Non-operating income includes royalties from licensing UTMD’s technology, rent from leasing underutilized property to others, income earned from investing the Company’s excess cash and gains from the sale of assets.  Non-operating expense includes interest on bank loans, bank service fees, excise taxes and losses from the sale of assets. Also, the period-to-period remeasured value of EUR cash balances held in the UK, and GBP balances held in Ireland, generates a gain or loss which is booked at reporting period end as non-operating income or expense, as applicable.

27

Table of Contents

Net non-operating income (combination of non-operating income and non-operating expense) was $3,312 in 2023 and $869 in 2022. The higher non-operating income in 2023 compared to 2022 was due to higher interest income on UTMD’s cash balances. A description of components of UTMD’s non-operating income or expense follows:

1)  Interest Expense.  There was no interest expense in 2023 or 2022.  Absent an acquisition or large repurchase of shares that requires new borrowing, UTMD does not expect any interest expense in 2024.

2)  Investment of excess cash.  Consolidated investment income (including gains and losses on sales of investments) was $3,036 in 2023 compared to $661 in 2022. Average cash balances were almost $16 million higher in 2023 than in 2022, with average interest rates higher. UTMD is projecting current interest rates to continue in 2024, leading to another substantial increase in non-operating income if cash is not used to repurchase shares at an attractive price, or acquire another entity or product line. Although UTMD has been repurchasing shares during 1Q 2024, for purposes of providing an estimate of 2024 financial results, management has included $1,000 higher interest income in 2024 compared to 2023.

3)  Royalties.  Royalties in both 2023 and 2022 were $20. Presently, there is only one arrangement which began in 2020 under which UTMD is receiving royalties on its technology.

4)  Gains/ losses from remeasured currency in bank accounts.  UTMD recognized a $5 loss in 2023 compared to a $20 loss in 2022 from losses on remeasured foreign currency bank balances.  EUR currency cash balances in the UK, and GBP currency cash bank balances in Ireland, are subject to remeasured currency translation gains/ losses as a result of period-to-period changes in FX rates.

5)  Other non-operating income or expense.  Income received from renting unused warehouse space in Ireland and parking lot space in Utah for a cell phone tower, offset by bank fees, and other miscellaneous non-operating expenses resulted in net non-operating income of $254 in 2023 compared to a net non-operating income of $196 in 2022.

EBT results from adding net non-operating income to or subtracting net non-operating expense from Operating Income. Consolidated EBT was $20,089 (40.0% of sales) in 2023 compared to $20,659 (39.5% of sales) in 2022.  In other words, despite the inflationary cost pressures diluting UTMD’s GPM and much higher litigation expenses, the Company expanded its EBT Margin (EBT as a percentage of sales) on 3.9% lower sales, yielding just a 2.8% decrease in EBT. In essence, in 2023 higher non-operating income offset lower gross profits from a lower GPM on lower sales and higher litigation expenses.  With much uncertainty surrounding the projections for income and expense categories above, management is estimating about a 16% decline in 2024 EBT compared to 2023.

The 2023 EBT of UTMD Ltd. (Ireland) was €7,680 (56.0% of sales) compared to €8,013 (56.3% of sales) in 2022.  Femcare Ltd’s (UK) 2023 EBT was (£469) compared to (£574) in 2022. Femcare Ltd, as the legal manufacturer of the Filshie Clip System, supports worldwide regulatory requirements in addition to absorbing the IIA amortization expense of the 2011 Femcare Group acquisition. Femcare AUS’s 2023 EBT was AUD 544 (34.3% of sales) compared to AUD 573 (31.3% of sales) in 2022. Femcare Canada’s 2023 EBT was CAD 620 (41.6% of sales) compared to CAD 622 (36.9% of sales) in 2022.

EBITDA is a non-US GAAP metric that UTMD management believes is of interest to investors because it provides meaningful supplemental information to both management and investors that represents profitability performance without factoring in effects of financing, accounting decisions regarding non-cash expenses, capital expenditures or tax environments. If the Company were to need to borrow to pay for a major asset or acquisition, the projected EBITDA metric would be of primary interest to a lending institution to determine UTMD’s credit worthiness. Although the U.S. Securities and Exchange Commission advises that EBITDA is a non-GAAP metric, UTMD’s non-US GAAP EBITDA is the sum of the following elements in the table below, each of which is a US GAAP number:

In summary, UTMD’s 2023 non-US GAAP EBITDA declined 4.5% compared to 2022.  With the above projections for 2024 financial performance in mind, non-US GAAP EBITDA in 2024 is expected to be in the range of $19-20 million.

e)Net Income, Earnings Per Share (EPS) and Return on Equity (ROE).

i) Net Income

Net Income results after subtracting a provision for estimated income taxes from EBT. UTMD’s Net Income in 2023 was $16,635 (33.1% of sales) compared to $16,473 (31.5% of sales) in 2022. The higher Net Income, despite 2.8% lower EBT, resulted from a lower income tax provision rate, which was 17.2% in 2023 compared to 20.3% in 2022. The primary reason for the lower rate was due to a portion of UTMD’s significant interest income being non-taxable.

28

Table of Contents

In general, year-to-year fluctuations in the combined average income tax provision rate will result from variation in EBT contribution from subsidiaries in jurisdictions with different corporate income tax rates. Taxes in foreign subsidiaries are based on taxable EBT in those sovereignties, which can be different from the contribution to consolidated EBT per US GAAP.  UTMD estimates, barring any new tax law changes which are currently unknown, and assuming cash will be allocated as previously invested, that its combined income tax rate for 2024 will be within the 18%-19% range, yielding Net Income approximately 17% lower than in 2023.

The UK had a corporate income tax rate of 19% for 2022 and 1Q 2023, followed by a 25% rate for the last nine months of 2023.  The UK also allowed a tax deduction for sales of UK patented products which varied from year-to-year based on somewhat complicated rules which are sorted out for UTMD by independent UK tax specialists. The income tax rate for AUS was 30% for both 2023 and 2022. The income tax rate for Canada was about 27.5% for both years. Profits of the Ireland subsidiary were taxed at a 12.5% rate on exported manufactured products, and a 25% rate on rental and other types of income including income from sales of medical devices in Ireland domestically. As UTMD stockholders likely remember, in the U.S., the Federal income tax rate was changed after 2017 to 21% from 34% prior to the 2017 Tax Cut and Jobs Act (TCJA).  Federal taxes are not 21% of U.S. EBT, however, as income taxes paid to the State are a deductible expense for Federal tax purposes, other expenses are not deductible and there remains an R&D tax credit along with other credits, not to mention a special GILTI tax related to foreign income and FDII tax credit related to profits on export sales. The Utah state income tax rate declined to 4.95% from 5% prior to the 2017 TCJA, and the State of Utah enacted income apportionment rules that provide for additional tax relief.

ii) Earnings Per Share (EPS)

EPS are Net Income divided by the number of shares of stock outstanding (diluted to take into consideration stock option awards which are “in the money,” i.e., have exercise prices below the applicable period’s weighted average market value).  Diluted EPS in year 2023 were $4.574 compared to $4.522 in 2022, a 1.2% increase. The increase in EPS was in contrast to a decrease in Operating Income as a result of the 2023 net non-operating income and a stock buy-back in 2Q 2022. Diluted shares were 3,637,071 for the year 2023 compared to 3,643,256 in 2022. Dilution for “in the money” unexercised options for the year 2023 was 8,303 shares compared to 5,934 shares in 2022. Actual outstanding common shares as of December 31, 2023 were 3,629,525. The 2023 EPS exceeded management’s projection at the beginning of the year.

29

Table of Contents

iii) ROE

Achieving a high ROE remains a key management objective for UTMD in order to grow without diluting stockholder interest. ROE is the quotient of Net Income divided by average Stockholders’ Equity, but more specifically it is the product of the Net Income margin, productivity of assets and financial leverage. UTMD’s high Net Income margin is the primary factor that continues to drive its ROE, with low financial leverage and decreasing asset productivity as cash balances rapidly grow. Cash dividends to stockholders and repurchase of shares, on the other hand, help in lowering average Stockholders’ Equity, reducing the denominator in calculating ROE. Building cash balances that increase Stockholders’ Equity, without proportionately increasing Net Income, reduces ROE. UTMD’s 2023 ROE before stockholder dividends was 13.7%.  In comparison, 2022 ROE was 14.9%.

The lower 2023 ROE compared to 2022 was the result of 1.0% higher Net Income coupled with 9.6% higher average Stockholders’ Equity. Average Stockholders’ Equity was $121,284 in 2023 compared to $110,696 in 2022.  UTMD’s Stockholders’ Equity has more than doubled over the last eleven years to $128 million at the end of 2023, despite being reduced by $50 million in dividends plus $16 million in share repurchases over that same period of time. UTMD’s average ROE over the last 31 years was 24%.

Looking forward to 2024, it will obviously be a rebuilding year as it appears likely that revenues from UTMD’s two previous largest customers are likely to be at least $7 million lower. If so, this will pressure UTMD’s GPM as much as five percentage points lower as a result of less absorption of fixed manufacturing overheads which are important resources to retain for the future.  In addition, although impossible to predict reliably, litigation expenses may be another $1 million higher than in 2023 given the slowness of the U.S. judicial system, particularly if some cases eventually go to trial.  Offsetting those negative impacts on financial performance, non-cash CSI IIA amortization expense will be $3.6 million lower than in 2023 and non-operating income from cash balances may be as much as $1 million higher, assuming that a substantial new investment or stock buy-back is not implemented to increase long-term stockholder value.  Although with a high level of uncertainty, management is estimating that UTMD consolidated revenues and net income in 2024 will be about 15% lower and 17% lower, respectively.  Despite a difficult year in comparison to the recent past, the Company expects to continue to operate at a high level in terms of profitability and positive cash generation.

Liquidity and Capital Resources

Cash Flows.

Net cash provided by operating activities in 2023 totaled $22,281 compared to $21,147 in 2022.  Net Income at $162 higher in 2023 compared to 2022 allowed net cash provided by operating activities in 2023, including adjustments for depreciation and other non-cash operating expenses, along with changes in working capital and the tax benefit attributable to exercise of employee incentive stock options, to be $1,134 higher than in 2022. Along with higher Net Income, working capital changes help fund operating activities. Accounts receivable had a $2,780 lower use of cash as a result of decreasing trade accounts receivable (A/R) $2,270 instead of the $511 increase in 2022, and inventories had a $1,683 lower use of cash with just a $670 increase in 2023 compared to a $2,353 increase in 2022 (second order derivatives).  On the other hand, uses of cash included 1) a $1,422 decline in 2023 year-ending accrued expenses instead of a $252 increase at year-end 2022, 2) $714 lower depreciation and amortization in 2023 compared to 2022 and 3) a $293 greater decline in deferred income taxes.  The inventory increase was a hedge against continued supply chain disruption.

In investing activities, during 2023 UTMD used $639 in capital expenditures to purchase new molds and manufacturing equipment and fixtures for expanded capabilities as well as to maintain and improve existing operating capabilities, compared to investing $809 in 2022. Capital expenditures in 2023 exceeded depreciation by $16.

In 2023 UTMD received $117 and issued 1,758 shares of stock upon the exercise of employee stock options. Option exercises in 2023 were at an average price of $66.40 per share. The Company received a $12 tax benefit from option exercises in 2023. UTMD did not repurchase shares of its stock in the open market during 2023.

In comparison, in 2022 UTMD received $174 and issued 3,135 shares of stock upon the exercise of employee and director stock options. Employees exercised a total of 3,501 option shares in 2022, with 366 shares immediately being retired as a result of optionees trading the shares in payment of the exercise price of the options.  Option exercises in 2022 were at an average price of $60.34 per share. The Company received a $6 tax benefit from option exercises in 2022. UTMD repurchased 30,105 shares of its stock in the open market during 2022 at an average cost of $82.88 per share.

UTMD did not borrow in the years 2023 and 2022.  Cash dividends paid to stockholders were $4,282 in 2023 compared to $3,162 in 2022.

Management believes that future income from operations and effective management of working capital will continue to provide the liquidity needed to finance internal growth plans.  In an uncertain economic environment, UTMD’s cash balances allow management to operate with the long-term best interest of stockholders in mind.  Planned 2024 capital expenditures for ongoing operations are expected to be less than depreciation of PP&E, although additional capital expenditure opportunities are being considered.

30

Table of Contents

Management plans to opportunistically utilize cash not needed to support normal operations in one or a combination of the following: 1) in general, to continue to invest at opportune times in ways that will enhance future profitability; 2) to make additional investments in new technology and/or processes; and/or 3) to acquire a product line or company that will augment revenue and EPS growth and better utilize UTMD’s existing infrastructure.  If there are no better strategic uses for UTMD’s cash, the Company will continue to return cash to stockholders in the form of dividends and share repurchases when the stock appears undervalued.

Management's Outlook.

UTMD remains small compared to many other companies, but its employees are experienced and remain diligent in their work. UTMD’s passion is in providing differentiated clinical solutions that will help improve the outcomes of medical procedures and reduce health risks, particularly for women and their babies.

The safety, reliability and performance of UTMD’s medical devices are consistently high and represent significant clinical benefits while providing minimum total cost of care.  UTMD will continue to leverage its reputation as a device innovator and reliable manufacturer which will responsively take on challenges to work with clinicians who use its specialty devices.  In doing so, UTMD will continue to differentiate itself, especially from its commodity-oriented competitors. In 2024, UTMD plans to

1)  exploit its pre-qualified status to introduce a line of high-pressure process control transducer configurations directly to biopharmaceutical manufacturers;

2)  continue to leverage OUS distribution and manufacturing synergies by further integrating capabilities and resources in multinational operations;

3)  focus on defending the proven safety and effectiveness of the Filshie Clip System in the U.S.;

4)  introduce additional products helpful to clinicians through product development;

5)  continue to achieve excellent overall financial operating performance despite a contraction in revenues;

6)  utilize positive cash generation to continue providing cash dividends to stockholders and make open market share repurchases if/ when the UTMD share price seems undervalued; and

7)  remain vigilant for affordable accretive acquisition opportunities which may be brought about by difficult economic conditions on small, innovative companies.

The Company has a fundamental focus to do an excellent job in meeting clinicians’ and patients’ needs, while providing stockholders with excellent returns.  In the combined form of cash dividends and share repurchases, UTMD “returned” $4,282 (26% of Net Income) in 2023 compared to $5,658 (34% of Net Income) in 2022 to stockholders.

In 2023, the value of UTMD’s stock declined 16%, ending the year at $84.22/ share, while $1.18 in cash dividends/ share were paid to stockholders. The DJIA, S&P 500 and NASDAQ Composite (where UTMD is traded) indices were all higher in 2023, respectively by 14%, 24% and 43%.

In comparison, in 2022, the value of UTMD’s stock increased, albeit less than 1%, ending the year at $100.53/ share, while $0.87 in cash dividends/ share were paid to stockholders. The DJIA, S&P 500 and NASDAQ (where UTMD is traded) indices were all lower in 2022, respectively by 9%, 19% and 33%.

The average annually compounded appreciation in UTMD stock value for the last 25 years was 11% per year, substantially outpacing all of the major indices. Adding dividends, UTMD stockholder value increased at an annually compounded rate of 11.8% over the last 25 years since 1998.

Combining share price appreciation as a result of a long-term financial performance and a capital allocation strategy that includes opportunistic share repurchases with steadily growing quarterly cash dividends paid to stockholders since 2004, longer-term UTMD stockholders have experienced excellent returns. Management is committed to continue that performance.

Off Balance Sheet Arrangements

None

31

Table of Contents

Contractual Obligations

The following is a summary of UTMD’s significant contractual obligations and commitments as of December 31, 2023:

Critical Accounting Policies and Estimates

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the reported amounts of revenues and expenses during the reporting period.

Management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Management has identified the following as the Company’s most critical accounting policies which require significant judgment and estimates. Although management believes its estimates are reasonable, actual results may differ from these estimates under different assumptions or conditions.

·Allowance for doubtful accounts: The majority of the Company’s receivables are with healthcare facilities and medical device distributors.  Although the Company has historically not had significant write-offs of bad debt, the possibility exists, particularly with foreign distributors where collection efforts can be difficult or in the event of widespread hospital bankruptcies.

·Inventory valuation reserves:  The Company strives to maintain inventory to 1) meet its customers’ needs and 2) optimize manufacturing lot sizes while 3) not tying-up an unnecessary amount of the Company’s capital increasing the possibility of, among other things, obsolescence. The Company believes its method of reviewing actual and projected demand for its existing inventory allows it to arrive at a fair inventory valuation reserve. While the Company has historically not had significant inventory write-offs, the possibility exists that one or more of its products may become unexpectedly obsolete for which a reserve has not previously been created. The Company’s historical write-offs have not been materially different from its estimates.

Accounting Policy Changes

The Company’s management has evaluated the recently issued accounting pronouncements through the filing date of these financial statements and has determined that the application of these pronouncements will not have a material impact on the Company’s financial position and results of operations.

32

Table of Contents

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Currency amounts are in thousands except per-share amounts and where noted.  Currencies are abbreviated as follows: the U.S. Dollar (USD or $), the Great Britain Pound (GBP or £), the Euro (EUR or €), the Australian Dollar (AUD or A$), the New Zealand Dollar (NZD) and the Canadian Dollar (CAD or C$).

The following comments should be read in conjunction with the accompanying financial statements.

Overview.

The 2022-year financial results demonstrate Utah Medical Products, Inc.’s (Nasdaq: UTMD’s) continuing excellent operating performance despite many challenges related to supply chain disruption, high input cost inflation as well as a continued shortage of labor with higher employee turnover. The Company exceeded its beginning of year financial projections for 2022.

For perspective, 25% of UTMD’s total USD consolidated worldwide revenues (sales) were invoiced in foreign currencies. Translating 2022 foreign currency sales into USD at the same exchange rates as in 2021 (“constant currency” sales) would have resulted in a 9.5% increase in 2022 worldwide revenues, with an 18.2% increase in sales outside the U.S. (OUS).  In other words, constant currency 2022 worldwide revenues were $53,715.

Although UTMD’s sales in 2022 were helped by an approximate 7% average increase in UTMD unit prices, costs of manufacturing increased more than that, resulting in a lower gross profit margin (GPM).  Despite an unusual litigation expense year, with better absorption of fixed USD operating costs, notably amortization of identifiable intangible assets, and, in this case, a favorable foreign currency exchange (FX) impact on OUS expenses, UTMD’s Operating Income Margin was less diluted than its GPM.  Combined with Operating Income, higher non-operating income, predominantly from interest on cash balances, leveraged the increase in Earnings Before Income Tax (EBT) to be greater than UTMD’s increase in revenues.

The further leverage in bottom line results (Net Income and Earnings Per Share) compared to 2021, was the result of an unfavorable adjustment in UTMD’s income tax provision in the prior year, which was not related to normal operations. According to U.S. Generally Accepted Accounting Principles (US GAAP), Net Income in 2Q 2021 was decreased $390 ($.107 decrease in EPS) by a long term deferred tax liability increase on the balance of Femcare intangible assets (the amortization of which is not tax-deductible in the UK) as a result of an enacted increase in the UK income tax rate from 19% to 25% effective beginning in April 2023.  That is, the 2021 $390 increase in deferred UK taxes from 2023 through 2026, according to US GAAP, had to be booked in the quarter in which the tax law change was enacted.  UTMD management believes that the presentation of results excluding the unfavorable deferred tax liability adjustment to 2021 Net Income provides meaningful supplemental information to both management and investors that is more clearly indicative of UTMD’s operating results in 2022 compared to 2021.  Please note that the non-US GAAP exclusion only affects Net Income and Earnings Per Share (EPS).  All other income statement categories at and above the EBT line were unaffected by the UK income tax rate adjustment.

Excluding the 2021 deferred tax liability increase and concomitant 2021 income tax provision increase resulting from the enactment of the UK corporate income tax change, UTMD’s 2022 non-US GAAP Net Income and Earnings Per Share (EPS) percentage changes are more modest and consistent with its increase in EBT, as follows:

Key profit margins (profits as a percentage of sales) in 2022 compared to 2021 follow:

Measures of the Company’s liquidity and overall financial condition improved as of the end of 2022 compared to the end of 2021 with year-end working capital up 21% and Stockholders’ Equity up 7% despite $3,163 in dividends paid to stockholders and $2,495 in share repurchases during 2022 which reduced both cash and Stockholders’ Equity by $5,658.  The improvement was the result of continued strong positive cash flow from normal operations.  In comparison, UTMD paid $11,465 in stockholder cash dividends in 2021, with no share purchases.  The Company also used $809 in cash in 2022 along with $552 in 2021 to invest in new manufacturing equipment and fixtures, as well as maintaining existing Property, Plant and Equipment (PP&E) in good working order.  The two-year capital expenditures exceeded depreciation by $113.

More specifically, UTMD’s cash equivalent balances at the end of 2022 increased $14,077 to $75,052 from $60,974 at the end of 2021.  Working capital increased $14,546 to $83,959 at the end of 2022 from $69,412 at the end of 2021.  Total liabilities increased $1,121 despite an $1,010 reduction in UTMD’s deferred tax liability and long-tern Repatriation Tax liability, primarily because of the early dividend payment in 4Q 2021. The Company remained without debt.  UTMD’s total debt ratio (total liabilities to total assets) was 8% at the end of 2022 compared to 7% at the end of 2021.  Stockholders’ Equity at the end of 2022 increased to $114,254 from $107,138 at the end of 2021, despite the aforementioned $5,658 in 2022 cash dividends and share repurchases which reduced Stockholders’ Equity.

20

Table of Contents

Productivity of Fixed Assets and Working Capital Assets.

Assets.

Year-end 2022 total consolidated assets were $123,874 comprised of $89,919 in current assets, $10,619 in consolidated net PP&E and $23,336 in net intangible assets.  This compares to $115,636 total assets at the end of 2021 comprised of $73,158 in current assets, $11,067 in consolidated net PP&E and $31,412 in net intangible assets. Total asset turns (total consolidated sales divided by average total assets for the year) in 2022 were 44% compared to 43% in 2021, as sales increased slightly faster than the increase in average assets.

Current assets increased $16,761 due to the $14,077 increase in year-end cash and investments, $407 higher accounts and other receivables, $2,217 higher year-end inventories and $59 higher other current assets, due to the higher sales activity and higher raw materials purchases relative to demand. Year-end 2022 and 2021 cash and investment balances were $75,052 and $60,974, representing 61% and 53% of total assets, respectively.  Net (after allowance for doubtful accounts) year-end trade accounts receivable (A/R) balances were $407 higher at the end of 2022 compared to 2021 due to 4Q 2022 sales $661 higher than in 4Q 2021, and average days in A/R of 37 days based on 4Q trade sales instead of 36 days at the end of 2021.  Average days in A/R from date of invoice of 37 days is well within UTMD’s objective. A/R over 90 days from invoice date rose from 2.4% of total A/R at the end of 2021 to 4.2% at the end of 2022.  The Company believes any older A/R will be collected or are within its reserve balances for uncollectible amounts.  Inventories at 2022 year-end were 34% higher from the end of 2021.

Working capital (current assets minus current liabilities) at year-end 2022 was 21% higher at $83,959 compared to $69,412 at year-end 2021.  Consistent with Federal and State rules, the TCJA repatriation tax current liability at the end of 2022 was $419 compared to $220 at the end of 2021.  The end of 2022 working capital exceeds UTMD’s needs for normal operations in an uncertain economic environment, funding of future organic growth and timely payment of accrued tax liabilities, in addition to allowing for substantial funding of any future acquisition without diluting stockholder interest, as well as continued payment of stockholder dividends and repurchase of UTMD shares. Despite a negative impact on Return on Stockholders’ Equity of retaining a high cash balance, UTMD believes that in times of high economic uncertainty and change, maintaining substantial cash balances increases its likelihood of being able to take advantage of opportunities that will benefit stockholders in the longer term, and retain key resources that will help ensure continued excellent long term performance.

December 31, 2022 net $10,619 total PP&E includes Utah, Ireland and England manufacturing molds, production tooling and equipment, test equipment, and product development laboratory equipment.  In addition, PP&E includes computers and software, warehouse equipment, furniture and fixtures, facilities and real estate for all five locations in Utah, Ireland, UK, Canada and Australia.  Manufacturing facilities in Utah, Ireland and the UK are standalone buildings with a combined 220,000 square feet on 15 acres of land.  The distribution facilities in Australia and Canada with a combined 8,000 square feet are part of larger industrial condominiums.  Management estimates the fair market value of the five owned facilities to be at least $35 million excluding the contents, the fungible value of which increases stockholder enterprise value relative to most of UTMD’s industry peers which lease their facilities.

Ending 2022 net consolidated PP&E (depreciated book value of all fixed assets) declined $448 as a result of the combination of capital expenditures of $809, depreciation of $612 and the effect of foreign currency exchange (FX) rates on year-end foreign subsidiary asset balances.

The following end-of-year FX rates to USD were applied to assets and liabilities of each applicable foreign subsidiary:

The year-end 2022 net book value (after accumulated depreciation) of consolidated PP&E was 31% of purchase cost.  End-of-year PP&E turns (Net Sales divided by Net PP&E) was 4.9 in 2022 compared to 4.4 in 2021 due to 7% higher 2022 sales and lower USD asset values of foreign subsidiaries, offset by investment in new PP&E assets needed for the future which are not in use yet.  A future leverage in productivity of fixed assets which will not have to be further increased to support new business activity will be a source of continued incremental profitability.

21

Table of Contents

Net intangible assets (after accumulated amortization) are comprised of the capitalized costs of obtaining patents and other intellectual property, as well as the value of identifiable intangible assets (IIA) and goodwill resulting from acquisitions. Net intangible assets were $23,337 (19% of total assets) at the end of 2022 compared to $31,412 (27% of total assets) at the end of 2021.  Per US GAAP, intangible assets are categorized as either 1) IIA, which are amortized over the estimated useful life of the assets, or 2) goodwill, which is not amortized or expensed until the associated economic value of the acquired asset becomes impaired. Those two categories of Femcare intangibles at year-end 2022 were net IIA of $6,168 and goodwill of $6,163. The accumulated amortization of Femcare IIA as of December 31, 2022 since the March 18, 2011 acquisition was $22,814. The remaining Femcare IIA will be fully amortized in 3 more years. The goodwill portion of intangible assets resulting from the Femcare acquisition, which is not amortized, declined $744 due to a weaker GBP at year-end, i.e. the different FX rate on fixed goodwill in GBP terms. In early 2019, UTMD acquired an additional $21,000 IIA from the purchase of the remaining life of exclusive U.S. distribution rights for the Filshie Clip System from CSI, of which $17,316 has been amortized through year-end 2022.  The remaining CSI IIA will be fully amortized in 4Q 2023.  UTMD’s goodwill balance from prior acquisitions including Femcare, Columbia Medical, Gesco and Abcorp was $13,354 at the end of 2022.

Because the products associated with UTMD’s acquisitions of Columbia Medical in 1997, Gesco in 1998, Abcorp in 2004 and Femcare in 2011 continue to be viable parts of UTMD’s overall business, UTMD does not expect the current goodwill value associated with the four acquisitions to become impaired in 2023. Amortization of IIA was $6,417 in 2022 compared to $6,645 in 2021. The difference was due to £1 lower Femcare IIA amortization and the GBP FX difference on all Femcare IIA amortization. Specifically, the 2022 non-cash amortization expense of Femcare IIA was $1,965 (£1,589) compared to $2,189 (£1,590) in 2021.  The 2023 non-cash amortization expense (included as part of consolidated G&A operating expenses) of Femcare IIA will be £1,589, or $1,923 if the USD/GBP average FX rate is 1.21.  In other words, the 2023 Femcare IIA amortization expense is expected to be about $42 lower because of an average projected weaker GBP relative to the USD. Both the 2022 and 2021 non-cash amortization expense of CSI IIA was $4,421. The 2023 operating expense resulting from final full amortization of CSI IIA will be $3,684.

Liabilities.

As a reminder, payments for the Federal and State repatriation (REPAT) tax liability which resulted from the U.S. TCJA enacted in 2017 were 8% of the respective tax liability per year for the first five years, and will be 15% in the sixth year, 20% in the seventh year and 25% in the eighth year.  UTMD’s total REPAT tax liability was $2,792.  Calendar year 2023 represents the sixth year, so $419 is the current liability at 15% of the total liability, and $1,256 is the long term REPAT tax liability to be paid in years 2024-2025, representing the remaining 45%.

Year-end 2022 current liabilities were $2,214 higher than at the end of 2021. Ending accrued liabilities were $1,558 higher due primarily to $398 higher OEM customer deposits and an accrued stockholder dividend payable. The $1,070 stockholder dividend declared in 4Q 2022 was paid in January 2023, whereas the $7,309 dividend declared in 4Q 2021 was paid in December 2021. Total liabilities were $1,121 higher at the end of 2022 compared to the end of 2021. The resulting 2022 year-end total debt ratio was 8% compared to 7% at the end of 2021.

The year-end 2022 Deferred Tax Liability balance created as a result of the fifteen-year deferred tax consequence of the amortization of Femcare’s IIA was $1,513, down from $2,105 at the end of 2021. The difference in the $592 decline compared to the $416 tax effect of 19% (2022 UK tax rate) times $2,189 in 2022 amortization of IIA was due to the  difference in the GBP FX rate on the remaining DTL balance at the end of 2022 as well as the USD/GBP currency exchange conversion of the IIA amortization during 2022. In addition to liabilities stated on the balance sheet, UTMD has operating lease and purchase obligations described in Note 14 and Note 12, respectively, to the financial statements.

Results of Operations.

a)Revenues.

Under accounting standards applicable for 2022, the Company believed that revenue should be recognized at the time of shipment as title generally passes to the customer at the time of shipment, or completion of services performed under contract.  Revenue recognized by UTMD is based upon documented arrangements and fixed contracts in which the selling price is fixed prior to acceptance and completion of an order.  Revenue from product or service sales is generally recognized at the time the product is shipped or service completed and invoiced, and collectability is reasonably assured.  Over 99% of UTMD’s revenue is recognized at the time UTMD ships a physical device to a customer’s designated location, where the selling price for the item shipped was agreed prior to UTMD’s acceptance and completion of the customer order. There are no post-shipment obligations which have been or are expected to be material to financial results.

22

Table of Contents

There are circumstances under which revenue may be recognized when product is not shipped, which have met the criteria of ASC 606:  the Company provides engineering services, for example, design and production of manufacturing tooling that may be used in subsequent UTMD manufacturing of custom components for other companies.  This revenue is recognized when UTMD’s service has been completed according to a fixed contractual agreement.

Terms of sale are established in advance of UTMD’s acceptance of customer orders. In the U.S., Ireland, UK, France, Australia and Canada since the beginning of 2017, UTMD has generally accepted orders directly from and shipped directly to end-user clinical facilities, as well as third party medical/surgical distributors, under UTMD’s Standard Terms and Conditions (T&C) of Sale. About 14% of UTMD’s domestic end-user sales went through third party med/surg distributors which contract separately with clinical facilities to provide purchasing, storage and scheduled delivery functions for the applicable facility.  UTMD’s T&C of Sale to end-user medical facilities are substantially the same in the U.S., Canada, Ireland, UK, France, Australia and New Zealand.

UTMD may allow separate discounted pricing agreements with a specific clinical facility or group of affiliated facilities based on volume of purchases.  Pricing agreements which are documented arrangements with clinical facilities, or groups of affiliated facilities, if applicable, are established in advance of orders accepted or shipments made.  For existing customers, past actual shipment volumes typically determine the fixed price by part number for the next agreement period. For new customers, the customer’s best estimate of volume is usually accepted by UTMD for determining the ensuing fixed prices for the agreement period. Prices are not adjusted after an order is accepted. For the sake of clarity, the separate pricing agreements with clinical facilities based on volume of purchases disclosure is not inconsistent with UTMD’s disclosure above that the selling price is fixed prior to the acceptance of a specific customer order.

UTMD’s global consolidated trade sales are comprised of domestic and OUS sales. Domestic sales in 2022 included 1) direct domestic sales, sales of finished devices to end-user facilities and med/surg distributors in the U.S., and 2) domestic OEM sales, sales of components or finished products, which may not be medical devices, to other companies for inclusion in their products.  OUS sales are export sales from UTMD in the U.S. to customers outside the U.S. invoiced in USD, and sales from UTMD subsidiaries in Ireland, Canada, Australia and the UK which may be invoiced in EUR, GBP, CAD, AUD, NZD or USD.  The term “trade” means sales to customers which are not part of UTMD. Each UTMD manufacturing entity had 2022 intercompany sales of components and/or finished devices to other UTMD entities.

The following table shows the 2022 USD-denominated revenues by sales channel compared to 2021.  Because domestic sales in foreign countries were invoiced in native currencies, the comparison in USD terms includes the change in foreign currency translation (FX) rates. In other words, just the FX rate relative to the USD in 2022 compared to 2021, reduced Canada domestic sales by 3.7%, Ireland domestic sales by 11.1%, UK domestic sales by 10.7%, France domestic sales by 10.9% and Australia/NZ domestic sales by 7.7%.

In summary, UTMD total worldwide (WW) consolidated USD sales in 2022 at $52,281 were almost 7% higher than in 2021 at $49,054.  But direct sales OUS in foreign currencies were substantially reduced in USD terms by a stronger USD. Total U.S. domestic sales including OEM were up $1,312 (+4.3%) in 2022 at $31,971 compared to $30,659 in 2021. OUS sales including sales to foreign distributors were up $1,916 (+10.4%) at $20,311 compared to $18,395 in 2021.  Constant currency OUS sales were up 18.2%.

Domestic Sales.

U.S. domestic sales in 2022 were 4.3% higher at $31,971 (61% of total sales) compared to $30,659 (63% of total sales) in 2021. Components of the $1,312 higher 2022 domestic sales were $857 (14.0%) lower sales of the Filshie Clip System devices in the U.S., $1,321 (+13.8%) higher sales of components and finished devices used in other companies’ products (OEM customers), and $848 (+5.7%) higher direct sales of all other UTMD (non-Filshie) finished devices to domestic end-users.

23

Table of Contents

Domestic Filshie Clip System sales in 2022 were 16% of total U.S. domestic sales compared to 20% in 2021.  Filshie sales have not recovered as well as the other domestic sales categories since the COVID-19 pandemic.  Looking forward to 2023, there remains a medical procedure trend in the U.S. to choose salpingectomy versus tubal ligation for permanent contraception post C-Section. Despite this, UTMD expects U.S. Filshie device sales in 2023 will remain about the same as in 2022.

Domestic OEM sales in 2022 were 34% of total U.S. domestic sales compared to 31% in 2021.  UTMD sold components and finished devices to 146 different U.S. companies in 2022 compared to 155 different companies in 2021, for use in their product-market offerings.  Sales to UTMD’s largest OEM customer represented 83% of total domestic OEM sales in 2022 compared to 82% of total domestic OEM sales in 2021. UTMD’s largest OEM customer markets biopharmaceutical manufacturing control systems which exclusively utilize UTMD’s pressure monitoring technology, and for which demand continued to be strong. Looking forward to 2023, UTMD expects demand for biopharmaceutical control systems to diminish relative to the recent past.

Domestic direct end-user sales excluding the Filshie Clip System (as well as OEM sales) were 50% of total U.S. domestic sales in 2022 compared to 49% in 2021.  Of UTMD’s four domestic direct product categories, neonatal products were $707 higher (+13%), labor & delivery (L&D) products were $45 higher (+1%), gynecology/ electrosurgery/ urology products excluding the Filshie Clip System were $155 higher (+3%), and blood pressure monitoring devices were $59 lower (7%).  UTMD expects 2023 domestic direct sales of its well-established devices to increase at a low single-digit percentage rate.

OUS Sales.

Sales OUS in 2022 in USD terms were $20,310 (10.4% higher) compared to $18,395 in 2021.  Using the same FX rates as in 2021 (“constant currency”), 2022 OUS sales were $21,744 (18.2% higher).

Because a significant portion of UTMD’s OUS sales are invoiced in foreign currencies, changes in FX rates can potentially have a material effect on period-to-period USD-denominated sales. UTMD’s FX rates for income statement purposes are transaction-weighted averages. The average rates from the applicable foreign currency to USD during 2022 compared to 2021 follow.

The total foreign sales-weighted FX rate change impact on 2022 sales compared to 2021 was (9.9%).  In other words, consolidated USD sales in 2022 were reduced $1,433 from what they would have been using the prior year’s FX rates.

Sixty-four percent of (USD denominated) 2022 OUS sales were invoiced in foreign currencies compared to 72% in 2021. As a portion of total USD WW consolidated sales, 25% of UTMD’s USD-equivalent sales were invoiced in foreign currencies in 2022 compared to 27% in 2021. The GBP, EUR, AUD and CAD converted sales represented 6%, 14%, 2% and 3% of total 2022 USD sales, respectively.  This compares to 6%, 15%, 3% and 3% of total 2021 USD sales.

USD-denominated trade (excludes intercompany) sales of devices to OUS customers (excluding France) by UTMD’s Ireland facility (UTMD Ltd) were $9,478 in 2022 (27% higher despite an 11% weaker EUR) compared to $7,439 in 2021.  In addition, UTMD Ltd also sold devices that it had manufactured directly to France in 2022 due to BREXIT, which earlier were sold to Femcare Ltd in the UK on an intercompany basis and then sold by Femcare Ltd directly to French medical facilities. USD-denominated sales to France in 2022 were $1,235 (13% lower with an 11% lower EUR) compared to $1,424 in 2021. Some sales, mostly to Northern Ireland, were invoiced in GBP which was also 11% lower in 2022 compared to the 2021 USD.  The total FX rate change reduced Ireland’s USD-denominated sales by $897.

In 2022, UTMD’s UK subsidiary, Femcare Ltd., had $2,781 trade sales of devices to domestic UK and certain international distributor customers, 13% higher (despite an 11% weaker GBP) compared to $2,451 in 2021. The total FX rate change reduced the UK’s USD-denominated sales by $381.

24

Table of Contents

USD-denominated sales of devices to end-users in Australia and New Zealand by Femcare’s Australia distribution subsidiary (Femcare Australia Pty Ltd) were $1,267 (26% lower with an 8% lower AUD) in 2022 compared to $1,705 in 2021.  The weaker AUD in 2022 reduced USD-denominated Australia sales by $105.

UTMD’s Canada distribution subsidiary (Utah Medical Products Canada, Inc.) USD-denominated sales of devices to end-users in Canada were $1,294 (6% lower with a 4% lower CAD) compared to $1,382 in 2021. The weaker CAD reduced Canada sales by $50.

UTMD groups its sales into four general product categories: 1) obstetrics, comprised of labor and delivery management tools for monitoring fetal and maternal well-being, for reducing risk in performing difficult delivery procedures and for improving clinician and patient safety;  2) gynecology/ electrosurgery/ urology, comprised of tools for gynecological procedures associated primarily with cervical/ uterine disease including LETZ, endometrial tissue sampling, transvaginal uterine sonography, diagnostic laparoscopy, surgical contraception and other MIS procedures; specialty excision and incision tools; conservative urinary incontinence therapy devices; and urology surgical procedure devices;  3) neonatal critical care, comprised of devices that provide developmentally-friendly care to the most critically ill babies, including providing vascular access, enteral feeding, administering vital fluids, oxygen therapy while maintaining a neutral thermal environment, providing protection and assisting in specialized applications; and  4) blood pressure monitoring/ accessories/ other, comprised of specialized transducers and components as well as molded parts and assemblies sold on an OEM basis to other companies.  In these four categories, UTMD’s primary revenue contributors enjoy significant brand awareness by clinical users.

Global revenues by product category:

OUS revenues by product category:

* includes molded components and finished medical and non-medical devices sold to OEM customers.

Looking forward to 2023 sales, UTMD’s largest customer representing almost $11.6 million in 2022 WW consolidated revenues, including 83% of U.S. OEM sales and 28% of Ireland’s international distributor sales, has provided mixed signals for demand for all of 2023.  UTMD is planning for a reduction in annual sales to this customer, even though shipments together with orders received to-date for the first nine months of 2023 for pressure transducer assemblies are higher than in 2022. The actions of the U.S. Federal Reserve to continue to increase interest rates because of sticky inflation, combined with a lack of a significant U.S. recession, is likely to result in a stronger average USD in 2023 relative to 2022, resulting in a negative impact on about 25% of UTMD’s sales invoiced in foreign currencies. Another key to 2023 sales results will be retaining U.S. Filshie device sales at a similar level as in 2022. Offsetting the above possible negative factors, because of the sticky inflation in input costs, UTMD has raised its unit prices again in early 2023, and expects unit demand for its medical devices to end-users to remain stable.  In summary, management’s best estimate at this time is that 2023 consolidated WW revenues may be about the same as in 2022, but perhaps lower depending on OEM sales, without consideration for acquiring another source of revenues not currently in UTMD’s portfolio.

25

Table of Contents

b)Gross Profit (GP).

UTMD’s 2022 consolidated GP, the surplus after subtracting costs of manufacturing, which includes purchasing and transporting raw materials, forming components, assembling, inspecting, testing, packaging and sterilizing products, from net revenues, was $32,196 (61.6% of sales) compared to $30,917 (63.0% of sales) in 2021.  GP in 2022 increased $1,280 (+4.1%) with a 6.6% increase in revenues.

The Gross Profit Margin (GPM), which is GP divided by sales, contracted due to the fact that all components of manufacturing cost increased at a rate faster than the increase in revenues which included price increases to customers.  Manufacturing costs in Utah, where about 60% of the Company’s product revenues are manufactured, increased at a rate more than double UTMD’s average price increases, resulting in a lower U.S. GPM.  U.S. direct labor and raw material costs increased more than 10%, while manufacturing overhead (MOH) costs increased more than 20%.  The Company experienced an unfavorable year for its self-insured U.S. health care plan, a doubling of freight for incoming materials and significantly more engineering dedicated to process improvements, all of which are included in MOH.

UTMD’s Ireland subsidiary’s (UTMD Ltd’s) 2022 GP was EUR 8,538 compared to EUR 6,788 in 2021. The associated GPMs were 60.0% in 2022 and 61.2% in 2021.  Femcare UK 2022 GP was GBP 1,297 compared to GBP 913 in 2021. The 2022 UK GPM was 52.0% compared to 46.3% in 2021. A delayed substantial UK recovery in Filshie device sales after the COVID-19 pandemic explains the GPM improvement, as UK manufacturing overhead costs are relatively fixed. Femcare Australia and Femcare Canada are simply distribution facilities for UTMD finished devices in their respective countries. GP is the result of subtracting intercompany purchase prices of devices, plus incoming freight, from revenues. Australia 2022 GP was AUD 940 (51.4% of sales) compared to AUD 1,399 (61.6% of sales) in 2021. Canada 2022 GP was CAD 870 (51.7% of sales) compared to CAD 907 (52.4% of sales) in 2021. In the U.S., GP was $20,699 in 2022 compared to $20,100 in 2021. The U.S. GPM was 54.8% in 2022 compared to 55.8% in 2021.  A summation of the above GP of each subsidiary will not yield UTMD’s consolidated total GP because of elimination of profit in inventory of intercompany sales.

In 2023, UTMD has the objective to manage manufacturing cost pressures to maintain its GPM consistent with 2022.

26

Table of Contents

c)Operating Income.

Operating Income results from subtracting operating expenses from GP. Operating Income in 2022 was $19,790 (37.9% of sales) compared to $18,880 (38.5% of sales) in 2021.  UTMD’s 2022 Operating Income margin (Operating Income divided by sales) contracted only 0.6 percentage points after its GPM contracted 1.4 percentage points.  This was due to the fact that Intangible Asset amortization expenses related to the Filshie Clip System (included in Operating Expenses) were better absorbed with higher sales, that is, were 1.3 percentage points lower than in 2021.  In addition, subsidiary operating expenses in foreign currencies were diminished when translated into USD in the same manner that foreign currency sales were diminished by a strong USD.

The UTMD Ltd (Ireland) Operating Income margin in 2022 was 57.2% compared to 57.8% in 2021.  Femcare UK’s Operating Income margin per US GAAP, which includes the IIA amortization expense of the 2011 acquisition, was negative in both 2022 and 2021.  Femcare Australia’s 2022 Operating Income margin was 30.9% compared to 45.9% in 2021.  Femcare Canada’s 2022 Operating Income margin was 37.3% compared to 34.5% in 2021. UTMD’s 2022 Operating Income margin in the U.S. was 31.2% compared to 33.2% in 2021.  For clarity, the CSI IIA amortization expense hit the U.S. Operating Income margin, and the Femcare IIA amortization expense hit the Femcare UK Operating Income margin.

Operating expenses include sales and marketing (S&M) expenses, product development (R&D) expenses and general and administrative (G&A) expenses. Consolidated WW operating expenses were $12,407 (23.7% of sales) in 2022 compared to $12,037 (24.5% of sales) in 2021. The following table provides a comparison of operating expense categories, as well as further segmentation of G&A expenses:

Description of Operating Expense Categories:

i) S&M expenses:

S&M expenses in 2022 were $1,507 (2.9% of sales) compared to $1,414 (2.9% of sales) in 2021.  The higher expenses were due to higher U.S. distribution costs including fees paid to Med/Surg distributors.  OUS S&M expenses in 2022 compared to 2021 were diminished by a stronger USD, i.e. constant currency 2022 S&M expenses would be $34 higher.

S&M expenses are the costs of communicating UTMD’s differences and product advantages, providing training and other customer service in support of the use of UTMD’s solutions, attending clinical meetings and medical trade shows, administering customer agreements, advertising, processing orders, shipping, and paying commissions to outside independent representatives. In markets where UTMD sells directly to end-users, which in 2021-2022 included the U.S., Ireland, UK, Australia, New Zealand, France and Canada, the largest components of S&M expenses were the cost of customer service required to timely process orders and the distribution costs associated with shipping products.

S&M expenses include all customer support costs including training. In general, training is not required for UTMD’s products since they are well-established and have been clinically widely used. Written “Instructions For Use” are packaged with all finished devices. Although UTMD does not have any explicit contracts with customers to provide training, it does provide hospital in-service and clinical training as required and reasonably requested.

27

Table of Contents

UTMD promises prospective customers that it will provide, at no charge in reasonable quantities, electronic media and other instructional materials developed for the use of its products. UTMD provides customer support from offices in the U.S., Canada, Ireland, UK and Australia by telephone to answer user questions and help troubleshoot any user issues. Occasionally, on a case-by-case basis, UTMD may utilize the services of an independent practitioner to provide educational assistance to clinicians. All in-service and training expenses are routinely expensed as they occur.  Except for the consulting services of independent practitioners and occasional use of marketing consultants, all of these services are allocated from fixed S&M overhead costs. Historically, additional consulting costs have been immaterial to financial results, which is also UTMD’s expectation for the future.

ii) R&D expenses:

R&D expenses in 2022 were $493 (0.9% of sales) compared to $526 (1.1% of sales) in 2021.  R&D expenses include the costs of investigating clinical needs, developing innovative concepts, testing concepts for viability, validating methods of manufacture, completing any necessary premarketing clinical trials, regulatory documentation and other activities required for design control, responding to customer requests for product enhancements, and assisting manufacturing engineering on an ongoing basis in developing new processes or improving existing processes. Product development (R&D) expenses declined as a result of reassigning engineers to help with manufacturing improvements and quality assurance in a challenging year. R&D also played a significant role in manufacturing process improvements that were needed to support fast-growing OEM product demand. Other than OEM products, no new UTMD devices were launched in 2022. UTMD does not pre-announce new devices that are being developed.

iii)  G&A expenses:

G&A expenses in 2022 were $10,407 (19.9% of sales) compared to $10,096 (20.6% of sales) in 2021. G&A expenses include the “front office” functional costs of executive management and outside directors, finance and accounting, corporate information systems, human resources, stockholder relations, corporate risk management, corporate governance, protection of intellectual property, amortization of identifiable intangibles and legal costs.  The table above helps identify certain specific categories of G&A expenses which might be of interest to stockholders.

The increase in G&A expenses was essentially due to $648 higher U.S. litigation costs, offset by $351 reduction of OUS foreign currency expenses due to a stronger USD.  An FX rate change favorable USD impact of $223 (out of the $351 total) was from the amortization of Femcare acquisition IIA, which was £1,589 in 2022 compared to £1,590 in 2021.

As stockholders likely remember, the non-cash IIA amortization expense related to the Filshie Clip System includes IIA from both the 2011 acquisition of Femcare Group Ltd and the 2019 purchase of the CSI exclusive U.S. distribution rights for the Filshie Clip System.  The combined IIA amortization expense in 2022 was 12.2% of total WW consolidated sales ($6,386) compared to 13.5% in 2021 ($6,610).  The decline in percent of sales was due both to higher sales and to a stronger USD converting the GBP IIA amortization expense, which was about the same in GBP as in the prior year.

The Femcare IIA amortization expense will continue at the same £397 per calendar quarter rate ending in 1Q 2026 (or until the value of any remaining IIA becomes impaired), subject to changes in the FX rate when converted to USD. The early 2019 purchase of CSI exclusive Filshie Clip System U.S. distribution rights is being amortized at $1,105 per calendar quarter over the remaining life of the Femcare distribution agreement with CSI, which will end in 4Q 2023..

Excluding the non-cash Femcare and CSI IIA amortization expenses, UTMD consolidated operating expenses were $6,021 (11.5% of sales) in 2022 compared to $5,427 (11.1% of sales) in 2021.  The difference was due to litigation expenses.  Maintaining a consistent GPM and tightly controlling operating expenses remains the key to UTMD’s excellent profitability and Return on Stockholder Equity (ROE).

d)Non-operating income/Non-operating expense, and Income Before Taxes (EBT).

Non-operating income includes royalties from licensing UTMD’s technology, rent from leasing underutilized property to others, income earned from investing the Company’s excess cash and gains from the sale of assets.  Non-operating expense includes interest on bank loans, bank service fees, excise taxes and losses from the sale of assets. Also, the period-to-period remeasured value of EUR cash balances held in the UK, and GBP balances held in Ireland, generates a gain or loss which is booked at reporting period end as non-operating income or expense, as applicable.

28

Table of Contents

Net non-operating income (combination of non-operating income and non-operating expense) was $869 in 2022 and $181 in 2021. The higher non-operating income in 2022 compared to 2021 was due to higher interest income on UTMD’s cash balances. A description of components of UTMD’s non-operating income or expense follows:

1)  Interest Expense.  There was no interest expense in 2022 or 2021.  Absent an acquisition or large repurchase of shares that requires new borrowing, UTMD does not expect any interest expense in 2023.

2)  Investment of excess cash.  Consolidated investment income (including gains and losses on sales of investments) was $661 in 2022 compared to $46 in 2021. Average cash balances were almost $12 million higher in 2022 than in 2021. In addition, in contrast to 2022, interest rates in 2021 were practically zero, and UTMD had to pay negative interest on EUR bank balances in Ireland. UTMD is projecting higher interest rates to continue in 2023, leading to another substantial increase in non-operating income.

3)  Royalties.  Royalties in 2022 were $20 compared to $15 in 2021. Presently, there is only one arrangement which began in 2020 under which UTMD is receiving royalties on its technology.

4)  Gains/ losses from remeasured currency in bank accounts.  UTMD recognized a $20 loss in 2022 compared to a $23 loss in 2021 from losses on remeasured foreign currency bank balances.  EUR currency cash balances in the UK, and GBP currency cash bank balances in Ireland, are subject to remeasured currency translation gains/ losses as a result of period to period changes in FX rates.

5)  Other non-operating income or expense.  Income received from renting unused warehouse space in Ireland and parking lot space in Utah for a cell phone tower, offset by bank fees, and other miscellaneous non-operating expenses resulted in net non-operating income of $196 in 2022 compared to a net non-operating income of $124 in 2021.

EBT results from adding net non-operating income or subtracting net non-operating expense from Operating Income. Consolidated EBT was $20,659 (39.5% of sales) in 2022 compared to $19,061 (38.9% of sales) in 2021.  In other words, despite the inflationary cost pressures diluting UTMD’s GPM and much higher litigation expenses, the Company expanded its EBT Margin (EBT as a percentage of sales) on higher sales, yielding an 8.4% increase in EBT in a tough year. In summary, UTMD’s 2022 EBT substantially exceeded management’s beginning of year projections due to achieving less dilution in profit margins and greater non-operating income than was expected.

The 2022 EBT of UTMD Ltd. (Ireland) was €8,013 (56.3% of sales) compared to €6,277 (56.6% of sales) in 2021.  Femcare Ltd’s (UK) 2022 EBT was (£574) compared to (£1,003) in 2021.  Femcare Ltd, as the legal manufacturer of the Filshie Clip System, supports worldwide regulatory requirements in addition to absorbing the IIA amortization expense of the 2011 Femcare Group acquisition. Femcare AUS’s 2022 EBT was AUD 573 (31.3% of sales) compared to AUD 1,042 (45.9% of sales) in 2021. Femcare Canada’s 2022 EBT was CAD 622 (36.9% of sales) compared to CAD 592 (34.2% of sales) in 2021.

As a side note for clarity of comparison of financial results, UTMD’s 2021 EBT, as well as all other income statement measures above the EBT line in the 2021 Income Statement, were unaffected by the 2Q 2021 income tax provision adjustment as a result of a future income tax rate change in the UK, which increased UTMD’s long term deferred tax liability and reduced Net Income in 2021.

EBITDA is a non-US GAAP metric that UTMD management believes is of interest to investors because it provides meaningful supplemental information to both management and investors that represents profitability performance without factoring in effects of financing, accounting decisions regarding non-cash expenses, capital expenditures or tax environments. If the Company were to need to borrow to pay for a major asset or acquisition, the projected EBITDA metric would be of primary interest to a lending institution to determine UTMD’s credit worthiness. Although the U.S. Securities and Exchange Commission advises that EBITDA is a non-GAAP metric, UTMD’s non-US GAAP EBITDA is the sum of the following elements in the table below, each of which is a US GAAP number:

In summary, UTMD’s 2022 non-US GAAP EBITDA increased 5.1% compared to 2021.

e)Net Income, Earnings Per Share (EPS) and Return on Equity (ROE).

i) Net Income

Net Income results after subtracting a provision for estimated income taxes from EBT. UTMD’s US GAAP Net Income in 2022 was $16,473 (31.5% of sales) compared to $14,788 (30.1% of sales) in 2021. Because of a future UK income tax rate change enacted in 2021 which reduced 2021 Net Income and EPS results per US GAAP, management does not believe the year-to-year comparisons in US GAAP Net Income and EPS are an accurate measure of UTMD’s bottom-line 2022 financial performance comparison with 2021. Ignoring the income tax adjustment, 2021 non-US GAAP Net Income was $15,178 (30.9% of sales).  Please see the table below which presents Net Income both according to US GAAP and also prior to recognition of the 2021 income tax provision adjustment.

29

Table of Contents

The US GAAP consolidated income tax provision rate for 2022 was 20.3% compared to 22.4% in 2021. The estimated tax provision adjustment in 2021 increased the average rate. The non-US GAAP consolidated combined income tax provision rate for 2021 was 20.4%, about the same as in 2022. For clarity, the UK income tax rate change in 2021 from 19% to 25% beginning in April 2023 added $390 to UTMD’s 2021 income tax provision, representing the increased tax which will be due over the remaining life of amortization of Femcare’s IIA, which is not a tax-deductible expense in the UK.

In general, year-to-year fluctuations in the combined average income tax provision rate will result from variation in EBT contribution from subsidiaries in jurisdictions with different corporate income tax rates. Taxes in foreign subsidiaries are based on taxable EBT in those sovereignties, which can be different from the contribution to consolidated EBT per US GAAP.  UTMD expects, barring any new tax law changes which are currently unknown, that its combined income tax rate for 2023 will be within the 20.3%-20.5% range.

The UK had a corporate income tax rate of 19% for both 2022 and 2021.  The UK also allowed a tax deduction for sales of UK patented products which varied from year-to-year based on somewhat complicated rules which are sorted out for UTMD by independent UK tax specialists. The income tax rate for AUS was 30% for both 2022 and 2021. The income tax rate for Canada was about 27% for both years. Profits of the Ireland subsidiary were taxed at a 12.5% rate on exported manufactured products, and a 25% rate on rental and other types of income including income from sales of medical devices in Ireland domestically. As UTMD stockholders likely remember, in the U.S., the Federal income tax rate was changed after 2017 to 21% from 34% prior to the 2017 Tax Cut and Jobs Act (TCJA).  Federal taxes are not 21% of U.S. EBT, however, as income taxes paid to the State are a deductible expense for Federal tax purposes, other expenses are not deductible and there remains an R&D tax credit along with other credits, not to mention a GILTI tax related to foreign income and FDII tax credit related to profits on export sales. The Utah state income tax rate declined to 4.95% from 5% prior to the TCJA, and the State of Utah enacted income apportionment rules that provide for additional tax relief.

ii) Earnings Per Share (EPS)

EPS are Net Income divided by the number of shares of stock outstanding (diluted to take into consideration stock option awards which are “in the money,” i.e., have exercise prices below the applicable period’s weighted average market value).  US GAAP diluted EPS in year 2022 were $4.522 compared to $4.041 in 2021, an 11.9% increase.  Excluding the income tax provision increase due to the DTL adjustment in 2021, non-US GAAP diluted EPS in 2021 were $4.147. The 2022 EPS increase over the non-US GAAP 2021 EPS was 9.0%, which is more indicative of normal operating results. The increase in EPS was higher than the increase in Operating Income as a result of the 2022 improvement in net non-operating income from higher interest on higher cash balances, and a stock buy-back in 2Q 2022. Diluted shares were 3,643,256 for the year 2022 compared to 3,659,814 in 2021. Dilution for “in the money” unexercised options for the year 2022 was 5,934 shares compared to 12,606 shares in 2021. Actual outstanding common shares as of December 31, 2022 were 3,627,767. The 2022 EPS exceeded management’s projection at the beginning of the year.

30

Table of Contents

UTMD management believes the presentation of Net Income and EPS results excluding the tax liability estimate adjustment in 2021 provides meaningful supplemental information to both management and investors that is more clearly indicative of UTMD’s bottom line results for comparison purposes.

US GAAP:

Non-US GAAP (excluding the 2021 UK DTL change):

Note:  The 2021 tax provision adjustment only affected UTMD’s income tax provision, Net Income and EPS, not consolidated revenues (sales), GP, Operating Income or EBT.

The non-US GAAP financial measures indicate that the 2022 growth in Net Income and EPS compared to 2021 was more modest, and facilitate management’s internal comparisons for purposes of planning future performance. The non-US GAAP financial measures disclosed by UTMD should not be considered a substitute for or superior to financial measures calculated in accordance with US GAAP, and the financial results calculated in accordance with US GAAP and reconciliations to those financial statements should be carefully evaluated.

Looking forward to 2023, UTMD believes that sales to its medical device end-users will remain stable.  This might be partly offset, however, if the USD on the average is stronger, reducing the USD value of approximately 25% of UTMD’s revenues invoiced in foreign currencies.  In recent years, UTMD’s sales to its largest OEM customer have grown rapidly, culminating in 22% of UTMD’s consolidated WW revenues in 2022. Projections of demand from this customer have not been reliable in the past, and its signals for 2023 are currently mixed despite year-to-date orders which are higher. Given the abatement of vaccine production for COVID-19, UTMD anticipates a near term lessening of pharmaceutical control device demand, perhaps reducing UTMD’s revenues in 2023 relative to 2022 from this customer. Therefore, management believes it is reasonable to project 2023 revenues in the range of $50 to $52 million compared to $52.3 million in 2022, without consideration for acquiring another source of revenues not currently in UTMD’s portfolio. The Company also believes it can maintain its Gross Profit Margin and Operating Income Margin in 2023 with slightly lower sales, excluding unusual litigation costs, despite economic headwinds associated with a high cost inflation environment.  In the absence of a significant use of cash to increase long term stockholder value, the incremental litigation costs should be more than covered by UTMD’s increase in interest income on its cash reserves. The endpoint of this 2023 projection is Net Income and EPS about the same as in 2022.

iii) ROE

Maintaining a high ROE remains a key management objective for UTMD in order to grow without diluting stockholder interest. ROE is the quotient of Net Income divided by average Stockholders’ Equity, but more specifically it is the product of the Net Income margin, productivity of assets and financial leverage. Although UTMD’s high Net Income margin is the primary factor that continues to drive its ROE, cash dividends to stockholders and repurchase of shares help in lowering average Stockholders’ Equity, reducing the denominator in calculating ROE. UTMD’s 2022 ROE before stockholder dividends was 14.9%.  In comparison, 2021 ROE was 14.1%.

31

Table of Contents

The higher 2022 ROE compared to 2021 was the result of 11.4% higher US GAAP Net Income coupled with 5.4% higher average Stockholders’ Equity. Average Stockholders’ Equity was $110,696 in 2022 compared to $104,980 in 2021.  UTMD’s Stockholders’ Equity has more than doubled over the last ten years to $114 million at the end of 2022, despite being reduced by $46 million in dividends plus $16 million in share repurchases over that same period of time.

Maintaining a high ROE with the dilutive effect of rapidly growing Average Stockholders’ Equity (despite reductions from dividends and stock repurchases), while maintaining excellent Net Income results, suggests an excellent increase in stockholder value. UTMD’s average ROE over the last 30 years was 24%.

Liquidity and Capital Resources

Cash Flows.

Net cash provided by operating activities in 2022 totaled $21,147 compared to $21,203 in 2021.  Net Income at $1,685 higher in 2022 compared to 2021 allowed net cash provided by operating activities in 2022, including adjustments for depreciation and other non-cash operating expenses, along with changes in working capital and the tax benefit attributable to exercise of employee incentive stock options, to be about the same as in 2021. The increase in Net Income funded operating activities particularly including a $1,868 higher increase in inventories than the increase in 2021 (second order derivative).  The additional inventory increase was a hedge against supply chain disruption emanating from the COVID-19 pandemic.  Other changes were a function of normal business activity, e.g. 1) a $577 lower use of cash as a result of increasing trade accounts receivable (A/R) $511 instead of the $1,088 increase in 2021,  2) a $486 lower use of cash as a result of increasing accounts payable $463 instead of the $23 decrease in 2021, 3) a $461 higher use of cash from increasing accrued expenses only $252 compared to the $713 increase in 2021, 4) a $308 higher use of cash from reducing deferred income taxes $401 compared to the $92 reduction in 2021, and 5) $251 less cash provided from less depreciation and amortization in 2022 compared to 2021.  Also, the income tax benefit attributable to exercise of employee stock options in 2022 was $34 lower than in 2021 because 10,210 fewer shares were exercised.

In investing activities, during 2022 UTMD used $809 in capital expenditures to purchase new molds and manufacturing equipment and fixtures for expanded capabilities as well as to maintain and improve existing operating capabilities, compared to investing $552 in 2021. Capital expenditures exceeded depreciation by $197.  UTMD also expensed $40 more in 2022 compared to 2021 for tools and equipment, including repairs.

In 2022, UTMD received $174 and issued 3,135 shares of stock upon the exercise of employee and director stock options. Employees exercised a total of 3,501 option shares in 2022, with 366 shares immediately being retired as a result of optionees trading the shares in payment of the exercise price of the options.  Option exercises in 2022 were at an average price of $60.34 per share. The Company received a $6 tax benefit from option exercises in 2022. UTMD repurchased 30,105 shares of its stock in the open market during 2022 at an average cost of $82.88 per share.

In comparison, in 2021 UTMD received $560 and issued 11,702 shares of stock upon the exercise of employee stock options. Employees exercised a total of 13,711 option shares in 2021, with 2,009 shares immediately being retired as a result of optionees trading the shares in payment of the exercise price of the options.  Option exercises in 2021 were at an average price of $57.40 per share. The Company received a $39 tax benefit from option exercises in 2021. UTMD did not repurchase shares of its stock in the open market during 2021.

UTMD did not borrow in the years 2021 and 2022.  Cash dividends paid to stockholders were $3,162 in 2022 compared to $11,465 in 2021.

Management believes that future income from operations and effective management of working capital will continue to provide the liquidity needed to finance internal growth plans.  In an uncertain economic environment, UTMD’s cash balances allow management to operate with the long-term best interest of stockholders in mind.  Planned 2023 capital expenditures for ongoing operations are expected to be about the same in magnitude as depreciation of PP&E, although additional capital expenditure opportunities are being considered.

32

Table of Contents

Management plans to utilize cash not needed to support normal operations in one or a combination of the following: 1) in general, to continue to invest at opportune times in ways that will enhance future profitability; 2) to make additional investments in new technology and/or processes; and/or 3) to acquire a product line or company that will augment revenue and EPS growth and better utilize UTMD’s existing infrastructure.  If there are no better strategic uses for UTMD’s cash, the Company will continue to return cash to stockholders in the form of dividends and share repurchases when the stock appears undervalued.

Management's Outlook.

UTMD remains relatively small compared to many other companies, but its employees are experienced and remain diligent in their work. UTMD’s passion is in providing differentiated clinical solutions that will help improve the outcomes of medical procedures and reduce health risks, particularly for women and their babies.

The safety, reliability and performance of UTMD’s medical devices are consistently high and represent significant clinical benefits while providing minimum total cost of care.  UTMD will continue to leverage its reputation as a device innovator and reliable manufacturer which will responsively take on challenges to work with clinicians who use its specialty devices.  In doing so, UTMD will continue to differentiate itself, especially from its commodity-oriented competitors.  In 2023, UTMD again plans to

1)  leverage distribution and manufacturing synergies by further integrating capabilities and resources in its multinational operations;

2)  expand manufacturing capacity at a time when resources are scarce;

3)  focus on effectively differentiating the benefits of the Filshie Clip System in the U.S.;

4)  introduce additional products helpful to clinicians through product development;

5)  continue to achieve excellent overall financial operating performance;

6)  utilize positive cash generation to continue providing cash dividends to stockholders and make open market share repurchases if/when the UTMD share price seems undervalued; and

7)  remain vigilant for affordable accretive acquisition opportunities which may be brought about by difficult burdens on small, innovative companies.

The Company has a fundamental focus to do an excellent job in meeting clinicians’ and patients’ needs, while providing stockholders with excellent returns.  In the combined form of cash dividends and share repurchases, UTMD “returned” $5,658 (34% of Net Income) in 2022 compared to $11,465 (78% of Net Income) in 2021 to stockholders.

In 2022, the value of UTMD’s stock increased, albeit less than 1%, ending the year at $100.53/ share, while $0.87 in cash dividends/ share were paid to stockholders. The DJIA, S&P 500 and NASDAQ (where UTMD is traded) indices were all lower in 2022, respectively by 9%, 19% and 33%.

In comparison, in 2021, the value of UTMD’s stock improved 19%, ending the year at $100.00/ share, while $3.14 in cash dividends/ share were paid. The DJIA, S&P 500 and NASDAQ (where UTMD is traded) indices were up 19%, 27% and 27% respectively in 2021.

The average annually compounded appreciation in UTMD stock value for the last 24 years was 12.0% per year, substantially outpacing all of the major indices. Adding dividends, UTMD stockholder value increased at an annually compounded rate of 12.9% over the last 24 years since 1998.

Combining share price appreciation as a result of a long-term financial performance and a capital allocation strategy that includes opportunistic share repurchases with steadily growing quarterly cash dividends paid to stockholders since 2004, longer term UTMD stockholders have experienced excellent returns. Management is committed to continue that performance.

Off Balance Sheet Arrangements

None

33

Table of Contents

Contractual Obligations

The following is a summary of UTMD’s significant contractual obligations and commitments as of December 31, 2022:

Critical Accounting Policies and Estimates

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the reported amounts of revenues and expenses during the reporting period.

Management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Management has identified the following as the Company’s most critical accounting policies which require significant judgment and estimates. Although management believes its estimates are reasonable, actual results may differ from these estimates under different assumptions or conditions.

·Allowance for doubtful accounts: The majority of the Company’s receivables are with healthcare facilities and medical device distributors.  Although the Company has historically not had significant write-offs of bad debt, the possibility exists, particularly with foreign distributors where collection efforts can be difficult or in the event of widespread hospital bankruptcies.

·Inventory valuation reserves:  The Company strives to maintain inventory to 1) meet its customers’ needs and 2) optimize manufacturing lot sizes while 3) not tying-up an unnecessary amount of the Company’s capital increasing the possibility of, among other things, obsolescence. The Company believes its method of reviewing actual and projected demand for its existing inventory allows it to arrive at a fair inventory valuation reserve. While the Company has historically not had significant inventory write-offs, the possibility exists that one or more of its products may become unexpectedly obsolete for which a reserve has not previously been created. The Company’s historical write-offs have not been materially different from its estimates.

Accounting Policy Changes

The Company’s management has evaluated the recently issued accounting pronouncements through the filing date of these financial statements and has determined that the application of these pronouncements will not have a material impact on the Company’s financial position and results of operations.

34

Table of Contents

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Currency amounts are in thousands except per-share amounts and where noted.  Currencies are abbreviated as follows: the U.S. Dollar (USD or $), the Great Britain Pound (GBP or £), the Euro (EUR or €), the Australian Dollar (AUD or A$), the New Zealand Dollar (NZD) and the Canadian Dollar (CAD or C$).

The following comments should be read in conjunction with the accompanying financial statements.

Overview.

The 2021 year financial results demonstrate Utah Medical Products, Inc.’s (Nasdaq: UTMD’s) continuing performance improvement despite many challenges related to the COVID-19 pandemic including on-again/off-again restrictions on so-called nonessential medical procedures, supply chain disruption, high inflation on raw materials, freight and labor costs as well as a continued shortage of labor from higher employee turnover.  Because of UTMD’s unusual dip in 2020 financial performance, UTMD continues to report its income statement results compared to the same periods not only for 2021 compared to 2020, but also for 2021 compared to the pre-pandemic year of 2019.  In that regard, the Company exceeded its stated objective for 2021 to try to fully recover back to its 2019 financial performance.

UTMD management believes that the presentation of three years of annual income statement comparisons provides meaningful supplemental information to both management and investors due to the impact of  several factors related to the COVID-19 pandemic including economic variations affecting foreign currency exchange rates for sales invoiced in foreign currencies, uneven customer demand from the timing of ups and downs in government restrictions on “nonessential” medical procedures, supply disruptions and inflation in input costs.

For perspective, as stockholders may recall, total worldwide revenues for the 2020 pandemic year were 10% lower than in pre-pandemic 2019.  Sales outside the U.S. (OUS) were more negatively affected by the reaction to the pandemic than inside the U.S., and recovered more slowly in 2021. Direct to end-user sales, which drive UTMD’s overall profitability, were 14% lower for the 2020 pandemic year.  Operating Income in 2020 was 22% lower than in pre-pandemic 2019.  UTMD maintained its manufacturing operations in the U.S. and Ireland throughout the pandemic, without government assistance, in order to support important clinical needs of patients. During the pandemic, UTMD protected its critical mass of overhead resources and did not adjust relative to the decline in sales, which proved to be a good decision given 2021 results and future resource needs.

A comparison of 2021 bottom line results with the results of 2020 and 2019, according to U.S. Generally Accepted Accounting Principles (US GAAP), is affected by some income tax provision adjustments not related to normal operations: 1)  in 4Q 2019, net income was increased $582 ($.156 increase in EPS) as a result of final adjustments made to state of Utah tax estimates following the December 2017 U.S. “Tax Cuts and Jobs Act” (TCJA), enacted in late 2017;  2) in 2Q 2020, net income was decreased $225 ($.061 decrease in EPS) by a long term deferred tax liability increase on the balance of Femcare intangible assets (the amortization of which is not tax-deductible in the UK) as a result of a delay in the enacted UK income tax rate reduction, and 3) in 2Q 2021, net income was decreased $390 ($.107 decrease in EPS) by a long term deferred tax liability increase on the balance of Femcare intangible assets (the amortization of which is not tax-deductible in the UK) as a result of an enacted increase in the UK income tax rate effective in 2023.  The 2020 $225 increase in deferred UK taxes over the following six years, and the 2021 $390 increase in deferred UK taxes from 2023 through 2026, according to US GAAP, must be booked in the quarter in which the tax law change was enacted. The UK decided to not reduce its corporate income tax rate from 19% to 17% beginning in 2Q 2020, as was previously enacted, and then in 2Q 2021 decided to increase its corporate income rate to 25% as of April 1, 2023.  UTMD management believes that the presentation of results excluding the unfavorable deferred tax liability adjustment to its 2020 and 2021 net income and the favorable U.S. tax-related adjustment to 2019 net income provides meaningful supplemental information to both management and investors that is more clearly indicative of UTMD’s operating results in 2021 compared to 2020 and 2019.  Please note that the non-US GAAP exclusions only affects Net Income and Earnings Per Share.  All other income statement categories at and above the EBT line were unaffected by the UK tax rate adjustments.

Excluding the 2021 and 2020 deferred tax liability increases and concomitant “one-time” income statement tax provision increase resulting from the enactment of the UK corporate income tax changes, and favorable tax provision adjustment in 2019 related to the U.S. TCJA, UTMD’s non-US GAAP Net Income and Earnings Per Share (EPS) percentage changes follow:

Key profit margins (profits as a percentage of sales) in 2021 compared to 2020 and 2019 calendar years follow:

Profit margins in 2021 recovered to be consistent with UTMD’s pre-pandemic performance. In 2020, Gross Profit declined more than Sales as a result of less absorption of fixed overheads and marginal costs associated with the pandemic including personal protective equipment for employees, cleaning supplies, extra pay to encourage employees to come to work, pay continuation beyond normal sick pay and accrued vacation pay for those quarantined with symptoms or exposed to someone with symptoms, lower productivity as a result of social distancing and higher costs levied by some suppliers and service providers.  In contrast and despite higher variable costs in 2021, UTMD’s 2021 Gross Profit increased more than Sales due to lower U.S. employee medical plan costs and improved labor productivity, in addition to better absorption of fixed manufacturing overhead expenses.

In 2020, Operating Income was leveraged down from lower GP compared to 2019 primarily due to the fixed $6,470 noncash expense resulting from amortizing Identifiable Intangible Assets (IIA) which resulted from the purchase of Femcare in 2011 and the remaining life of the U.S. exclusive distribution rights for the Filshie Clip System from CooperSurgical Inc. (CSI) in 2019.  Also, the CSI IIA amortization expense in 2019 was only $6,089 because of a partial year of amortization plus a stronger USD in 2019 which reduced fixed GBP Femcare IIA amortization expense in USD terms.  In contrast, the fixed IIA amortization expenses, which are included in General & Administrative (G&A) operating expense, were diluted by substantially higher sales in 2021 than in 2020 and a 6.6% stronger GBP in 2021 relative to the 2020 USD, which reduced the USD value of the fixed GBP Femcare IIA amortization expense.

Non-US GAAP Net Income and EPS increased the same as Operating Income in 2021 compared to 2020 because the consolidated total income tax rate prior to US GAAP tax adjustments was the same in both years at 20.4%.

Measures of the Company’s liquidity and overall financial condition improved as of the end of 2021 compared to the end of 2020 with year-end working capital up 19% and Stockholders’ Equity up 4% despite a $7,309 special dividend paid to stockholders near the end of 2021 which reduced both cash and Stockholders’ Equity by that same amount.  The improvement was the result of continued strong positive cash flow from normal operations. In total, UTMD paid $11,465 in stockholder cash dividends in 2021 compared to $4,116 in 2020.  In 2020, the Company also used $6,976 of its cash to repurchase its shares.  UTMD did not repurchase shares in 2021.  The Company also used $552 in cash in 2021 to invest in new manufacturing equipment for a future need in addition to maintaining Property, Plant and Equipment (PP&E) in good working order.

20

Table of Contents

In spite of the combined $12,017 use of cash for stockholder dividends and capital expenditures, UTMD’s cash equivalent balances at the end of 2021 increased $9,384 to $60,974 from $51,590 at the end of 2020.  Working capital increased $10,941 to $69,412 at the end of 2021 from $58,471 at the end of 2020.  Total liabilities declined $425. The Company remained without debt.  UTMD’s total debt ratio (total liabilities to total assets) was 7% at the end of 2021 compared to 8% at the end of 2020.  Stockholders’ Equity at the end of 2021 increased to $107,138 from $102,822 at the end of 2020, despite the $11,465 in 2021 cash dividends to stockholders which reduce Stockholders’ Equity.

Productivity of Fixed Assets and Working Capital Assets.

Assets.

Year-end 2021 total consolidated assets were $115,636 comprised of $73,158 in current assets, $11,067 in consolidated net PP&E and $31,412 in net intangible assets.  This compares to $111,745 total assets at the end of 2020 comprised of $62,262 in current assets, $11,326 in consolidated net PP&E and $38,157 in net intangible assets. Total asset turns (total consolidated sales divided by average total assets for the year) in 2021 were 43% compared to 38% in 2020, as sales increased faster than the increase in average assets.

Current assets increased $10,896 due to the $9,384 increase in year-end cash and investments, $1,028 higher accounts and other receivables, $374 higher year-end inventories and $110 higher other current assets, all due to the higher sales activity. Year-end 2021 and 2020 cash and investment balances were $60,974 and $51,590, representing 53% and 46% of total assets, respectively.  Net (after allowance for doubtful accounts) year-end trade accounts receivable (A/R) balances were $1,025 higher at the end of 2021 compared to 2020. This due to 4Q 2021 sales $903 higher than in 4Q 2020, and average days in A/R of 36 days based on 4Q trade sales instead of 31 days at the end of 2020.  Average days in A/R from date of invoice of 36 days is well within UTMD’s objective. A/R over 90 days from invoice date rose from 1.7% of total A/R at the end of 2020 to 2.4% at the end of 2021.  The Company believes any older A/R will be collected or are within its reserve balances for uncollectible amounts.  Inventories at 2021 year-end were only 6% higher from the end of 2020, despite a 16% increase in annual shipments.

Working capital (current assets minus current liabilities) at year-end 2021 was 19% higher at $69,412 compared to $58,471 at year-end 2020.  Consistent with Federal and State rules, the TCJA repatriation tax current liability at the end of 2021 was $220 compared to $80 at the end of 2020.  The end of 2021 working capital exceeds UTMD’s needs for normal operations in an uncertain economic environment, funding of future organic growth and timely payment of accrued tax liabilities, in addition to allowing for substantial funding of any future acquisition without diluting stockholder interest, as well as continued payment of stockholder dividends and repurchase of UTMD shares.  Despite a negative impact on Return on Stockholders’ Equity of retaining a high cash balance, UTMD believes that in times of high economic uncertainty and change, maintaining substantial cash balances increases its likelihood of being able to take advantage of opportunities that will benefit stockholders in the longer term, and retain key resources that will help ensure continued excellent long term performance.

December 31, 2021 net $11,067 total PP&E includes Utah, Ireland and England manufacturing molds, production tooling and equipment, test equipment, and product development laboratory equipment.  In addition, PP&E includes computers and software, warehouse equipment, furniture and fixtures, facilities and real estate for all five locations in Utah, Ireland, UK, Canada and Australia.  Manufacturing facilities in Utah, Ireland and the UK are standalone buildings with a combined 220,000 square feet on 15 acres of land.  The distribution facilities in Australia and Canada with a combined 8,000 square feet are part of larger industrial condominiums.  Management estimates the fair market value of the five owned facilities to be at least $25 million excluding the contents, the fungible value of which increases stockholder enterprise value relative to most of UTMD’s industry peers which lease their facilities.

Ending 2021 net consolidated PP&E (depreciated book value of all fixed assets) declined $259 as a result of the combination of capital expenditures of $552, depreciation of $636 and the effect of foreign currency exchange (FX) rates on year-end foreign subsidiary asset balances.

The following end-of-year FX rates to USD were applied to assets and liabilities of each applicable foreign subsidiary:

The year-end 2021 net book value (after accumulated depreciation) of consolidated PP&E was 33% of purchase cost.  End-of-year PP&E turns (Net Sales divided by Net PP&E) was 4.4 in 2021 compared to 3.7 in 2020 due to 16% higher 2021 sales and lower USD asset values of foreign subsidiaries, offset by investment in new PP&E assets needed for the future which are not in use yet.  A future leverage in productivity of fixed assets which will not have to be further increased to support new business activity will be a source of continued incremental profitability.

21

Table of Contents

Net intangible assets (after accumulated amortization) are comprised of the capitalized costs of obtaining patents and other intellectual property, as well as the value of identifiable intangible assets (IIA) and goodwill resulting from acquisitions. Net intangible assets were $31,412 (27% of total assets) at the end of 2021 compared to $38,157 (34% of total assets) at the end of 2020.  Per US GAAP, intangible assets are categorized as either 1) IIA, which are amortized over the estimated useful life of the assets, or 2) goodwill, which is not amortized or expensed until the associated economic value of the acquired asset becomes impaired. Those two categories of Femcare intangibles at year-end 2021 were net IIA of $9,064 and goodwill of $6,907. The accumulated amortization of Femcare IIA as of December 31, 2021 since the March 18, 2011 acquisition was $23,419. The remaining Femcare IIA will be fully amortized in 4 more years. The goodwill portion of intangible assets resulting from the Femcare acquisition, which is not amortized, declined $65 due to a weaker GBP at year-end, i.e. the different FX rate on fixed goodwill in GBP terms. In early 2019, UTMD acquired an additional $21,000 IIA from the purchase of the remaining life of exclusive U.S. distribution rights for the Filshie Clip System from CSI, of which $12,895 has been amortized through year-end 2021.  The remaining CSI IIA will be fully amortized in less than 2 more years.  UTMD’s goodwill balance from prior acquisitions including Femcare, Columbia Medical, Gesco and Abcorp was $14,098 at the end of 2021.

Because the products associated with UTMD’s acquisitions of Columbia Medical in 1997, Gesco in 1998, Abcorp in 2004 and Femcare in 2011 continue to be viable parts of UTMD’s overall business, UTMD does not expect the current goodwill value associated with the four acquisitions to become impaired in 2022. Amortization of IIA was $6,645 in 2021 compared to $6,515 in 2020. The difference was due to £5 lower Femcare IIA amortization and the GBP FX difference on all Femcare IIA amortization. Specifically, the 2021 non-cash amortization expense of Femcare IIA was $2,189 (£1,590) compared to $2,049 (£1,595) in 2020.  The 2022 non-cash amortization expense (included as part of consolidated G&A operating expenses) of Femcare IIA will be £1,589, or $2,161 if the USD/GBP average FX rate is 1.36.  In other words, the 2022 Femcare IIA amortization expense is expected to be about $28 lower because of a slightly lower GBP amount and a projected weaker GBP relative to the USD. Both the 2021 and 2020 non-cash amortization expense of CSI IIA was $4,421. The 2022 operating expense resulting from amortization of CSI IIA will again be $4,421.

Liabilities.

As a reminder, payments for the Federal and State repatriation (REPAT) tax liability which resulted from the U.S. TCJA enacted in 2017 is 8% of the respective tax liability per year for the first five years, 15% in the sixth year, 20% in the seventh year and 25% in the eighth year.  Calendar year 2022 represents the fifth year, but the $220 current liability is somewhat less than 8% of UTMD’s $2,792 total REPAT tax liability due to earlier overpayment because earlier Federal and State payments were based on an initial estimate which was conservatively too high at $6,288 compared to the final adjusted estimate of $2,792. The long term $1,675 REPAT tax liability, to be paid in years 2023-2025, represents 60% of the total liability.

Year-end 2021 current liabilities were $45 lower than at the end of 2020. Ending accrued liabilities were $159 lower due primarily to $585 higher OEM customer deposits and $279 higher accrued payroll and bonuses offset by $1,038 lower dividends payable. The $1,038 stockholder dividend declared in 4Q 2020 was paid in January 2021, whereas the $7,309 dividend declared in 4Q 2021 was paid in December 2021. Total liabilities were $425 lower at the end of 2021 compared to the end of 2020. The resulting 2021 year-end total debt ratio was 7% compared to 8% at the end of 2020.

The year-end 2021 DTL balance created as a result of the fifteen-year deferred tax consequence of the amortization of Femcare’s IIA was $2,105, down from $2,151 at the end of 2020. The relatively small $47 decline in this DTL considering the $2,189 in 2021 amortization of IIA was due to the UK tax law change in 2Q 2021 which increased the DTL $390, together with a difference in GBP FX rate at the end of 2021. Without the tax law change, the theoretical tax effect at the 2021 19% tax rate for the 2021 IIA amortization expense would have been $416. In addition to liabilities stated on the balance sheet, UTMD has operating lease and purchase obligations described in Note 14 and Note 12, respectively, to the financial statements.

Results of Operations.

a)Revenues.

Under accounting standards applicable for 2021, the Company believed that revenue should be recognized at the time of shipment as title generally passes to the customer at the time of shipment, or completion of services performed under contract.  Revenue recognized by UTMD is based upon documented arrangements and fixed contracts in which the selling price is fixed prior to acceptance and completion of an order.  Revenue from product or service sales is generally recognized at the time the product is shipped or service completed and invoiced, and collectability is reasonably assured.  Over 99% of UTMD’s revenue is recognized at the time UTMD ships a physical device to a customer’s designated location, where the selling price for the item shipped was agreed prior to UTMD’s acceptance and completion of the customer order. There are no post-shipment obligations which have been or are expected to be material to financial results.

22

Table of Contents

There are circumstances under which revenue may be recognized when product is not shipped, which have met the criteria of ASC 606:  the Company provides engineering services, for example, design and production of manufacturing tooling that may be used in subsequent UTMD manufacturing of custom components for other companies.  This revenue is recognized when UTMD’s service has been completed according to a fixed contractual agreement.

Terms of sale are established in advance of UTMD’s acceptance of customer orders. In the U.S., Ireland, UK, France, Australia and Canada since the beginning of 2017, UTMD has generally accepted orders directly from and shipped directly to end-user clinical facilities, as well as third party medical/surgical distributors, under UTMD’s Standard Terms and Conditions (T&C) of Sale. About 11% of UTMD’s domestic end-user sales went through third party med/surg distributors which contract separately with clinical facilities to provide purchasing, storage and scheduled delivery functions for the applicable facility.  UTMD’s T&C of Sale to end-user medical facilities are substantially the same in the U.S., Canada, Ireland, UK, France, Australia and New Zealand.

UTMD may allow separate discounted pricing agreements with a specific clinical facility or group of affiliated facilities based on volume of purchases.  Pricing agreements which are documented arrangements with clinical facilities, or groups of affiliated facilities, if applicable, are established in advance of orders accepted or shipments made.  For existing customers, past actual shipment volumes typically determine the fixed price by part number for the next agreement period. For new customers, the customer’s best estimate of volume is usually accepted by UTMD for determining the ensuing fixed prices for the agreement period. Prices are not adjusted after an order is accepted. For the sake of clarity, the separate pricing agreements with clinical facilities based on volume of purchases disclosure is not inconsistent with UTMD’s disclosure above that the selling price is fixed prior to the acceptance of a specific customer order.

UTMD’s global consolidated trade sales are comprised of domestic and OUS sales. Domestic sales in 2021 included 1) direct domestic sales, sales of finished devices to end-user facilities and med/surg distributors in the U.S., and 2) domestic OEM sales, sales of components or finished products, which may not be medical devices, to other companies for inclusion in their products.  OUS sales are export sales from UTMD in the U.S. to customers outside the U.S. invoiced in USD, and sales from UTMD subsidiaries in Ireland, Canada, Australia and the UK which may be invoiced in EUR, GBP, CAD, AUD, NZD or USD.  The term “trade” means sales to customers which are not part of UTMD. Each UTMD entity had 2021 intercompany sales of components and/or finished devices to other UTMD entities.

The following table shows the 2021 USD denominated revenues by sales channel compared to 2020 and 2019.  Australia domestic sales included sales directly to New Zealand medical facilities beginning in 4Q 2020:

Except for Canada, sales in all channel categories rebounded well from 2020.  Whereas UTMD total consolidated sales in 2021 were almost 5% higher than in the pre-pandemic year of 2019, direct sales in Europe and Canada remained 20-30% lower than in 2019, indicating a slower recovery from the pandemic in those regions.  Global consolidated trade sales in 2021 were $49,054 compared to $42,178 in 2020 and $46,904 in 2019. The $4,726 (10.1%) lower sales in 2020 from 2019 were primarily the result of restrictions on medical procedures that government officials worldwide deemed nonessential during the COVID-19 pandemic, presumably to conserve medical facility capacity.  Total U.S. domestic sales including OEM were up $4,793 (+18.5%) in 2021, at $30,659 compared to $25,866 in 2020, and $27,493 in 2019. OUS sales were up $2,083 (+12.8%) at $18,395 compared to $16,312 in 2020, and $19,411 in 2019.

Domestic Sales.

U.S. domestic sales in 2021 were $30,659 (63% of total sales) compared to $25,866 (61% of total sales) in 2020, and $27,493 (59% of total sales) in 2019. The components of the $4,793 higher 2021 domestic sales were $209 (3.3%) lower sales of the Filshie Clip System devices in the U.S., $3,069 (+47.3%) higher sales of components and finished devices used in other companies’ products (OEM customers), and $1,933 (+14.8%) higher direct sales of all other UTMD (non-Filshie) finished devices to domestic end-users.  Domestic sales in 2019 were $27,493.

23

Table of Contents

Domestic Filshie Clip System sales in 2021 were 20% of total U.S. domestic sales compared to 24% in 2020 and 25% in 2019.  Filshie sales did not recover as well as the other domestic sales categories.  Looking forward to 2022, despite a continued recovery in overall surgical sterilization procedures including laparoscopic interval procedures, as there is a medical procedure trend in the U.S. to choose salpingectomy versus tubal ligation for permanent contraception post C-Section, UTMD expects U.S. Filshie device sales in 2022 will remain about the same as in 2021.

Domestic OEM sales in 2021 were 31% of total U.S. domestic sales compared to 25% in 2020 and 24% in 2019.  UTMD sold components and finished devices to 155 different U.S. companies in 2021, compared to 139 different companies in 2020 and 147 companies in 2019, for use in their product offerings.  Sales to UTMD’s largest OEM customer represented 82% of total domestic OEM sales in 2021 compared to 75% of total domestic OEM sales in both 2020 and 2019. UTMD’s largest OEM customer markets biopharmaceutical manufacturing control systems which exclusively utilize UTMD’s pressure monitoring technology, and for which demand is booming.  If UTMD had had the manufacturing capacity primarily in terms of assembly operators in 2021, OEM sales would have been much higher. Looking forward to 2022, UTMD again expects substantial growth in OEM sales as engineering projects for manufacturing expansion come to fruition.

Domestic direct end-user sales excluding the Filshie Clip System were 49% of total U.S. domestic sales in 2021 compared to 51% in both 2020 and 2019.  Of UTMD’s four domestic direct product categories, neonatal products were $5,343 (22% higher), labor & delivery (L&D) products were $3,940 (7% higher), gynecology/ electrosurgery/ urology products excluding the Filshie Clip System were $4,837 (12% higher), and blood pressure monitoring devices were $873 (25% higher).

OUS Sales.

Sales OUS in 2021 were $18,395 (12.8% higher) compared to $16,312 in 2020. OUS sales were $19,411 in 2019.  Europe and Canada were particularly affected by government restrictions during the pandemic.

Because a significant portion of UTMD’s OUS sales are invoiced in foreign currencies, changes in FX rates can potentially have a material effect on period-to-period USD-denominated sales. Although a weaker USD in the first half of the year helped increase foreign currency sales in USD terms, the FX rate impact for the year 2021 was a minor factor compared to the negative impact of the pandemic on OUS sales. UTMD’s FX rates for income statement purposes are transaction-weighted averages. The average rates from the applicable foreign currency to USD during 2021 compared to 2020 follow.  The average FX rates for 2019 are also listed for reference:

The sales weighted FX rate change in 2021 compared to 2020 was +4.9%.  In other words, consolidated USD sales in 2021 were increased $619 from what they would have been using the prior year’s FX rates.

Seventy-two percent of (USD denominated) 2021 OUS sales were invoiced in foreign currencies compared to 58% in 2020 and 66% in 2019. As a portion of total USD consolidated sales, 27% of UTMD’s USD-equivalent sales were invoiced in foreign currencies in 2021 compared to 22% in 2020 and 27% in 2019. The GBP, EUR, AUD and CAD converted sales represented 6%, 15%, 3% and 3% of total 2021 USD sales, respectively.  This compares to 6%, 10%, 3% and 3% of total 2020 USD sales, and to 8% GBP, 11% EUR, 4% AUD and 4% CAD of total 2019 USD sales.

USD-denominated trade (excludes intercompany) sales of devices to OUS customers (excluding France) by UTMD’s Ireland facility (UTMD Ltd) were $7,439 in 2021 (39% higher) compared to $5,347 in 2020, and were $5,894 in 2019.  In addition, UTMD Ltd also sold devices that it had manufactured directly to France in 2021 due to BREXIT, which in prior years were sold to Femcare Ltd in the UK on an intercompany basis and then sold by Femcare Ltd directly to French medical facilities. USD-denominated sales to France in 2021 were $1,424 (14% higher) compared to $1,253 in 2020, and were $1,785 in 2019. Some sales, mostly to Northern Ireland, were invoiced in GBP which was up 6.6% in 2021 compared to the 2020 USD.  In addition, as the 2021 EUR was 3.2% higher relative to the 2020 USD, the total FX impact added $226 to Ireland’s total 2021 sales.

In 2021, UTMD’s UK subsidiary, Femcare Ltd., had $2,451 trade sales of devices to domestic UK and certain international distributor customers, up 12% compared to $2,183 in 2020. The total FX impact added $170 in USD terms.  Femcare USD-denominated sales excluding France in 2019 were $3,596.

24

Table of Contents

USD-denominated sales of devices to end-users in Australia by Femcare’s Australia distribution subsidiary (Femcare Australia Pty Ltd) were $1,705 (20% higher) in 2021 compared to $1,421 in 2020.  In 4Q 2020, UTMD converted from selling devices by Femcare in the UK to a third party distributor in New Zealand (NZ) to distributing devices directly to NZ medical facilities from Femcare Australia.  In addition, an 8.6% stronger AUD in 2021 added $135 in USD-denominated sales.  Femcare Australia sales in 2019, which did not include sales to NZ, were $1,706.

UTMD’s Canada distribution subsidiary (Utah Medical Products Canada, Inc.) had the weakest sales results of UTMD’s OUS subsidiaries. USD-denominated sales of devices to end-users in Canada were $1,382 (7% lower) than $1,481 in 2020 despite a CAD which was 6.2% stronger than in the prior year. The stronger CAD added $88, so 2021 sales were $1,294 (13% lower) in constant currency terms. Canada sales were $2,107 in 2019.

UTMD groups its sales into four general product categories: 1) obstetrics, comprised of labor and delivery management tools for monitoring fetal and maternal well-being, for reducing risk in performing difficult delivery procedures and for improving clinician and patient safety;  2) gynecology/ electrosurgery/ urology, comprised of tools for gynecological procedures associated primarily with cervical/ uterine disease including LETZ, endometrial tissue sampling, transvaginal uterine sonography, diagnostic laparoscopy, surgical contraception and other MIS procedures; specialty excision and incision tools; conservative urinary incontinence therapy devices; and urology surgical procedure devices;  3) neonatal critical care, comprised of devices that provide developmentally-friendly care to the most critically ill babies, including providing vascular access, enteral feeding, administering vital fluids, oxygen therapy while maintaining a neutral thermal environment, providing protection and assisting in specialized applications; and  4) blood pressure monitoring/ accessories/ other, comprised of specialized transducers and components as well as molded parts and assemblies sold on an OEM basis to other companies.  In these four categories, UTMD’s primary revenue contributors enjoy significant brand awareness by clinical users.

Global revenues by product category:

OUS revenues by product category:

* includes molded components and finished medical and non-medical devices sold to OEM customers.

Looking forward to 2022, continuing government restrictions on so-called “non-essential” medical procedures seems unlikely.  Although there remains much room for pandemic recovery in UTMD’s direct distribution OUS, UTMD projects a 3-4% stronger USD on the average which will offset the unit growth in direct foreign currency sales in USD terms.  OUS distributor order patterns vary and are less predictable, but UTMD’s largest OUS distributor has placed a fixed 2022 order for BPM devices that is $550 higher than in 2021 based on an average EUR FX rate of 1.13 in 2022. Domestically, OEM sales are projected to be over $700 higher with projected capacity limits, but could be even higher if production worker hiring constraints in Utah become less severe. A key to sales results will be retaining U.S. Filshie device sales at a similar level as in 2021.  Except for Filshie devices in the U.S., UTMD raised product prices across the board an average of about 5% in late 4Q 2021, which will benefit 2022 sales in comparison to 2021 assuming customer demand remains relatively inelastic.  In summary, management’s best estimate at this time is that 2022 revenues will be up in the range of mid-single digit percentage growth.

25

Table of Contents

b)Gross Profit (GP).

UTMD’s 2021 consolidated GP, the surplus after subtracting costs of manufacturing, which includes purchasing raw materials, forming components, assembling, inspecting, testing, packaging and sterilizing products, from net revenues, was $30,917 (63.0% of sales) compared to $25,548 (60.6% of sales) in 2020 and $29,466 in 2019 (62.8% of sales).  GP in 2021 increased $5,369 (+21.0%) with a 16.3% increase in revenues.

The Gross Profit Margin (GPM), which is GP divided by sales, expanded primarily due to the fact that a large portion of UTMD’s manufacturing expenses were fixed compared to the prior year.  Another way to say this is that in 2020, a greater decline in GP than in sales was a result of UTMD’s decision to not cut important manufacturing overhead resources in the same proportion as the decline in sales, which would sacrifice future capabilities just to maintain a short term GPM.  In addition to the lower absorption of fixed manufacturing overhead costs in 2020, there were two other categories of increased costs that reduced the 2020 GPM compared to 62.8% in 2019: 1) marginal costs associated with the COVID-19 pandemic including personal protective equipment for employees, cleaning supplies, extra pay to encourage employees to come to work, pay continuation beyond normal sick pay and accrued vacation pay for those quarantined with symptoms or exposed to someone with symptoms, lower productivity as a result of social distancing and higher prices levied by some suppliers and service providers, and 2) an unusually unfavorable year for UTMD’s self-insured health care plan in the U.S.  Self-insured health care plan costs in 2021 returned to be more consistent with prior years’ levels.  Despite higher variable costs in 2021, particularly freight on incoming materials and a cost of living adjustment for Utah and Ireland production workers, the GPM in 2021 recovered to be consistent with the pre-pandemic year of 2019.

In 2022, UTMD plans to help manage inflationary manufacturing cost pressures with administering higher prices for its devices, as and when necessary.  Nevertheless, management expects that manufacturing costs in 2022 will increase faster than revenues resulting in a lower GPM.  However, UTMD also expects that GP will still be higher than in 2021.  If sales increase as a mid-single digit percentage, then GP are projected to increase as a low single-digit percentage.

UTMD’s Ireland subsidiary’s (UTMD Ltd’s) GP was EUR 6,788 compared to EUR 4,198 in 2020 and EUR 2,908 in 2019. The associated GPMs were 61.2% in 2021, 54.4% in 2020 and 43.1% in 2019.  Femcare UK 2021 GP was GBP 913 compared to GBP 1,495 in 2020 and GBP 3,884 in 2019. The UK 2021 GPM was 46.3% compared to 56.0% in 2020 and 70.2% in 2019. The transfer from the UK to Ireland of direct sales to France primarily explains the GP changes for both Ireland and the UK. Femcare Australia and Femcare Canada are simply distribution facilities for UTMD finished devices in their respective countries. GP is the result of subtracting intercompany purchase prices of devices plus freight from sales. Australia GP was AUD 1,399 (61.6% of sales) compared to AUD 1,194 (58.1% of sales) in 2020 and AUD 1,415 (57.7% of sales) in 2019. Canada GP was CAD 907 (52.4%of sales) in 2021 compared to CAD 1,128 (57.2% of sales) in 2020 and CAD 1,670 (54.5% of sales) in 2019. In the U.S., GP was $20,100 in 2021, $17,043 in 2020 and $19,180 in 2019. UTMD U.S. GPMs were 55.8% in 2021, 54.2% in 2020 and 57.1% in 2019.  A summation of the above GP of each subsidiary will not yield UTMD’s consolidated total GP because of elimination of profit in inventory of intercompany goods.

26

Table of Contents

c)Operating Income.

Operating Income results from subtracting operating expenses from GP. Operating Income in 2021 was $18,880 (38.5% of sales) compared to $13,708 (32.5% of sales) in 2020 and $17,632 (37.6% of sales) in 2019.  On top of benefitting from a higher GPM, the higher 2021 Operating Income margin (Operating Income divided by sales) additionally reflected better absorption of relatively fixed IIA amortization expense, included in General and Administrative (G&A) operating expenses, which was 13.5% of sales in 2021 compared to 15.3% of sales in 2020 and 13.0% of sales in 2019.  Excluding the non-cash Femcare and CSI IIA amortization expenses, UTMD consolidated operating expenses were $5,427 (11.1% of sales) compared to $5,370 (12.7% of sales) in 2020 and $5,744 (12.2% of sales) in 2019.  In other words, holding operating expense (excluding the IIA amortization expense) growth to 1% while sales increased 16% and GP increased 21%, leveraged the overall growth in Operating Income to almost 38% compared to 2020.

The UTMD Ltd (Ireland) Operating Income margin in 2021 was 57.8% compared to 50.5% in 2020 and 38.5% in 2019.  Femcare UK’s Operating Income margin per US GAAP, which includes the IIA amortization expense of the 2011 acquisition, was negative in both 2021 and 2020 compared to 27.8% in 2019.  Femcare Australia’s 2021 Operating Income margin was 45.9% compared to 41.7% in 2020 and 38.6% in 2019.  Femcare Canada’s 2021 Operating Income margin was 34.5% compared to 40.7% in 2020 and 41.9% in 2019. UTMD’s 2021 Operating Income margin in the U.S. was 33.2% compared to 28.5% in 2020 and 33.7% in 2019.  For clarity, the CSI IIA amortization expense hit the U.S. Operating Income margin, and the Femcare IIA amortization expense hit the Femcare UK Operating Income margin.

Operating expenses include sales and marketing (S&M) expenses, product development (R&D) expenses and G&A expenses. Consolidated operating expenses were $12,037 (24.5% of sales) in 2021, $11,840 (28.1% of sales) in 2020 and $11,834 (25.2% of sales) in 2019. The following table provides a comparison of operating expense categories, as well as further segmentation of G&A expenses, for the last three years.

Description of Operating Expense Categories:

i) S&M expenses:

S&M expenses in 2021 were $1,414 (2.9% of sales) compared to $1,554 (3.7% of sales) in 2020 and $1,738 (3.7% of sales) in 2019.  UK sales salaries were $130 lower in 2021 than in 2020 due to a reduction in the UK sales force.

S&M expenses are the costs of communicating UTMD’s differences and product advantages, providing training and other customer service in support of the use of UTMD’s solutions, attending clinical meetings and medical trade shows, administering customer agreements, advertising, processing orders, shipping, and paying commissions to outside independent representatives. In markets where UTMD sells directly to end-users, which in 2019-2021 included the U.S., Ireland, UK, Australia, France and Canada plus New Zealand in 2021, the largest components of S&M expenses were the cost of customer service required to timely process orders and the distribution costs associated with shipping products.

S&M expenses include all customer support costs including training. In general, training is not required for UTMD’s products since they are well-established and have been clinically widely used. Written “Instructions For Use” are packaged with all finished devices. Although UTMD does not have any explicit contracts with customers to provide training, it does provide hospital in-service and clinical training as required and reasonably requested.

27

Table of Contents

UTMD promises prospective customers that it will provide, at no charge in reasonable quantities, electronic media and other instructional materials developed for the use of its products. UTMD provides customer support from offices in the U.S., Canada, Ireland, UK and Australia by telephone to answer user questions and help troubleshoot any user issues. Occasionally, on a case-by-case basis, UTMD may utilize the services of an independent practitioner to provide educational assistance to clinicians. All in-service and training expenses are routinely expensed as they occur.  Except for the consulting services of independent practitioners and occasional use of marketing consultants, all of these services are allocated from fixed S&M overhead costs. Historically, additional consulting costs have been immaterial to financial results, which is also UTMD’s expectation for the future.

ii) R&D expenses:

R&D expenses in 2021 were $526 (1.1% of sales) compared to $486 (1.2% of sales) in 2020 and $483 (1.0% of sales) in 2019.  R&D expenses include the costs of investigating clinical needs, developing innovative concepts, testing concepts for viability, validating methods of manufacture, completing any necessary premarketing clinical trials, regulatory documentation and other activities required for design control, responding to customer requests for product enhancements, and assisting manufacturing engineering on an ongoing basis in developing new processes or improving existing processes. Although no new UTMD devices were launched in 2021, UTMD continued to customize configurations of its existing devices based on specific clinical requests and R&D played a significant role in manufacturing process improvements that were needed to support fast growing OEM product sales, in addition to continuing work on new product projects. UTMD does not pre-announce new devices that are being developed.

iii)  G&A expenses:

G&A expenses in 2021 were $10,096 (20.6% of sales) compared to $9,800 (23.2% of sales) in 2020 and $9,613 (20.5% of sales) in 2019.  G&A expenses include the “front office” functional costs of executive management and outside directors, finance and accounting, corporate information systems, human resources, stockholder relations, corporate risk management, corporate governance, protection of intellectual property, amortization of identifiable intangibles and legal costs.  The table above helps identify certain specific categories of G&A expenses which might be of interest to stockholders.

As indicated in the table above, amortization of the Femcare IIA acquired in 2011 is part of G&A expenses. The IIA GBP amortization expense in 2021 was £1,590 compared to £1,595 in 2020, practically the same.  However, because of a stronger GBP for the year as a whole, the USD 2021 IIA amortization expense was $140 higher than in 2020.  But 16.3% higher consolidated sales allowed better absorption of the resulting 6.8% higher USD Femcare IIA expense, i.e. Femcare IIA amortization expense was 4.5% of sales in 2021 compared to 4.9% of 2020 sales.  The G&A noncash amortization expense of Femcare IIA was 4.3% of 2019 total consolidated sales. The Femcare IIA amortization expense will continue until March 2026 (or until the value of any remaining IIA becomes impaired).  UTMD estimates that the Femcare IIA amortization expense in 2022 may be $25 lower due to an average stronger USD in 2022 compared to 2021.

The early 2019 $21,000 purchase of CSI exclusive Filshie Clip System U.S. distribution rights also represents an IIA which is being amortized on a straight line basis over the remaining life of the Femcare distribution agreement with CSI which will be through 3Q 2023 (unless it becomes impaired before that, which is unlikely). This CSI IIA amortization expense is included in U.S. G&A expenses.  In 2021 and 2020, the CSI IIA amortization expense was the same at $4,421.  But again, due to the 16.3% higher consolidated sales, the CSI IIA amortization expense represented only 9.0% of sales compared to 10.5% of sales in 2020. The CSI IIA amortization expense in 2019, which was a partial year due to the timing of the acquisition, was $4,053 (8.6% of 2019 annual sales).  In 2022, the constant $4,421 CSI IIA amortization expense will lower as a percentage of sales if further diluted by projected higher sales.

It seems worth noting that the combined Filshie Clip System and Femcare non-cash IIA amortization expenses represented more than half of all of UTMD’s total consolidated operating expenses during the three years of 2019-2021; 54.9% in 2021, 54.6% in 2020 and 51.5% in 2019.

d)Non-operating income/Non-operating expense, and Income Before Taxes (EBT).

Non-operating income includes royalties from licensing UTMD’s technology, rent from leasing underutilized property to others, income earned from investing the Company’s excess cash and gains from the sale of assets.  Non-operating expense includes interest on bank loans, bank service fees, excise taxes and losses from the sale of assets. Also, the period-to-period remeasured value of EUR cash balances held in the UK, and GBP balances held in Ireland, generates a gain or loss which is booked at reporting period end as non-operating income or expense, as applicable.

28

Table of Contents

Net non-operating income (combination of non-operating income and non-operating expense) was $181 in 2021, $132 in 2020 and $252 in 2019. The higher non-operating income in 2021 compared to 2020 was due to $142 higher rent income in Ireland from renting unneeded warehouse space. A description of components of UTMD’s non-operating income or expense follows:

1)  Interest Expense.  There was no interest expense in 2019-2021.  Absent an acquisition or large repurchase of shares that requires new borrowing, UTMD does not expect any interest expense in 2022.

2)  Investment of excess cash.  Consolidated investment income (including gains and losses on sales of investments) was $46 in 2021, $64 in 2020 and $255 in 2019.  Interest rates in 2021 remained practically zero, and UTMD had to pay negative interest on EUR bank balances in Ireland. UTMD is expecting interest rates to improve marginally in 2022.

3)  Royalties.  Royalties in 2021 were $15 compared to $20 in 2020, and $5 in 2019. Presently, there is only one arrangement which began in 2020 under which UTMD is receiving royalties on its technology.

4)  Gains/ losses from remeasured currency in bank accounts.  UTMD recognized a $23 loss in 2021 compared to a $45 gain in 2020 and a $76 loss in 2019 from gains or losses on remeasured foreign currency bank balances.  EUR currency cash balances in the UK, and GBP currency cash bank balances in Ireland, are subject to remeasured currency translation gains/ losses as a result of period to period changes in FX rates.

5)  Other non-operating income or expense.  Income received from renting unused warehouse space in Ireland and parking lot space in Utah for a cell phone tower, offset by bank fees, and other miscellaneous non-operating expenses resulted in net non-operating income of $124 in 2021 compared to a net non-operating expense of $10 in 2020 and $85 in 2019.

EBT results from adding net non-operating income or subtracting net non-operating expense from Operating Income. Consolidated EBT was $19,061 (38.9% of sales) in 2021 compared to $13,840 (32.8% of sales) in 2020 and $17,884 (38.1% of sales) in 2019.  The 2021 EBT of UTMD Ltd. (Ireland) was €6,277 (56.6% of sales) compared to €3,728 (48.3% of sales) in 2020 and €2,577 (38.2% of sales) in 2019.  Femcare Ltd’s (UK) 2021 EBT was (£1,003) compared to (£593) in 2020 and £1,566 (28.3% of sales) in 2019.  Femcare Ltd, as the legal manufacturer of the Filshie Clip System, supports worldwide regulatory requirements in addition to absorbing the IIA amortization expense of the 2011 Femcare Group acquisition. Femcare AUS’s 2021 EBT was AUD 1,042 (45.9% of sales) compared to AUD 857 (41.8% of sales) in 2020 and AUD 952 (38.8% of sales) in 2019. Femcare Canada’s 2021 EBT was CAD 592 (34.2% of sales) compared to CAD 798 (40.5% of sales) in 2020 and CAD 1,280 (41.8% of sales) in 2019.

As a side note for clarity of financial results, UTMD’s EBT, as well as all other income statement measures above the EBT line in the Income Statements, were unaffected by 2019-2021 adjustments to income tax provisions as a result of income tax rate changes in the UK enacted in 2Q 2020 and 2Q 2021, which increased UTMD’s long term deferred tax liability, and the 2019 corrected estimate of the repatriation tax and associated GILTI tax and FDII tax credit, all of which resulted from the U.S. TCJA enacted in December 2017.

EBITDA is a non-US GAAP metric that UTMD management believes is of interest to investors because it provides meaningful supplemental information to both management and investors that represents profitability performance without factoring in effects of financing, accounting decisions regarding non-cash expenses, capital expenditures or tax environments. If the Company were to need to borrow to pay for a major asset or acquisition, the projected EBITDA metric would be of primary interest to a lending institution to determine UTMD’s credit worthiness. Although the U.S. Securities and Exchange Commission advises that EBITDA is a non-GAAP metric, UTMD’s non-US GAAP EBITDA is the sum of the following elements in the table below, each of which is a US GAAP number:

In summary, UTMD’s 2021 non-US GAAP EBITDA increased 25.6% compared to 2020 and 6.5% compared to 2019, when 2021 sales were 16.3% higher than in 2020 and 4.6% higher than in 2019.  This metric is expected to also grow faster than the projected increase in sales in 2022.

e)Net Income, Earnings Per Share (EPS) and Return on Equity (ROE).

Net Income

Net Income results after subtracting a provision for estimated income taxes from EBT. UTMD’s US GAAP Net Income in 2021 was $14,788 (30.1% of sales) compared to $10,798 (25.6% of sales) in 2020 and $14,727 (31.4% of sales) in 2019. Because of changes in UTMD’s repatriation tax estimate in the year 2019 due to the TCJA enacted in December 2017, as well as UK income tax changes enacted in 2020 and 2021, management does not believe either that the tax provision adjustments have a direct relationship to sales in the same periods, or that the year-to-year changes in US GAAP Net Income is an accurate measure of UTMD’s bottom-line financial performance in the applicable time periods. Ignoring the income tax adjustments, 2021 non-US GAAP Net Income was $15,178 (30.9% of sales) compared to $11,023 (26.1% of sales) in 2020 and $14,145 (30.2% of sales) in 2019.  Please see the table below which presents Net Income both according to US GAAP and also prior to recognition of the various tax estimate adjustments.

29

Table of Contents

The US GAAP consolidated income tax provision rate for 2021 was 22.4% compared to 22.0% in 2020 and 17.7% of EBT in 2019. The estimated tax provision adjustments in 2019 reduced the 2019 average rate, whereas the adjustments in 2020 and 2021 increased the average rates.  The non-US GAAP consolidated combined income tax provision rate for both 2021 and 2020 was 20.4% compared to 20.9% of EBT in 2019. For clarity, the UK income tax rate change in 2021 from 19% to 25% beginning in April 2023 added $390 to UTMD’s 2021 income tax provision, representing the increased tax which will be due over the remaining life of amortization of Femcare’s IIA, which is not a tax deductible expense in the UK.  Similarly, the UK income tax rate change in 2020 from 17% to 19% added $225 to UTMD’s 2020 income tax provision, representing the increased tax which will be due over the remaining life of amortization of Femcare’s IIA, which is not a tax deductible expense in the UK.  The income tax adjustment in 2019 subtracted $582 from UTMD’s 2019 income tax provision due to UTMD’s initial estimates of taxes due under the TCJA being too high.

More normally and in general, year-to-year fluctuations in the combined average tax provision rate will result from variation in EBT contribution from subsidiaries in jurisdictions with different corporate income tax rates. Taxes in foreign subsidiaries are based on taxable EBT in those sovereignties, which can be different from the contribution to consolidated EBT per US GAAP.  UTMD expects, barring any new tax law changes which are currently unknown, that its combined income tax rate for 2022 will be within the (non-GAAP) 20.4%-20.9% range of the three years of 2019-2021.

The UK had an income tax rate of 19% for all three years 2019-2021.  The UK also allowed a tax deduction for sales of UK patented products which varied from year-to-year based on somewhat complicated rules which are sorted out for UTMD by independent UK tax specialists. The income tax rate for AUS was 30% for all three years. The income tax rate for Canada was about 26% for the three years. Profits of the Ireland subsidiary were taxed at a 12.5% rate on exported manufactured products, and a 25% rate on rental and other types of income including income from sales of medical devices in Ireland domestically. As UTMD stockholders likely remember, in the U.S. the Federal income tax rate was changed after 2017 to 21% from 34% prior to the TCJA.  Federal taxes are not 21% of U.S. EBT, however, as income taxes paid to the State are a deductible expense for Federal tax purposes, other expenses are not deductible and there remains an R&D tax credit along with other credits, not to mention a GILTI tax related to foreign income and FDII tax credit related to profits on export sales. The Utah state income tax rate declined to 4.95% from 5% prior to the TCJA, and the State enacted income apportionment rules that provide for additional tax relief.

Earnings Per Share (EPS)

EPS are Net Income divided by the number of shares of stock outstanding (diluted to take into consideration stock option awards which are “in the money,” i.e., have exercise prices below the applicable period’s weighted average market value).  Diluted EPS in 2021 per US GAAP were $4.041 ($4.147 prior to the UK deferred tax liability adjustment) compared to $2.941 ($3.002 prior to the UK deferred tax liability adjustment) in 2020 and $3.939 ($3.784 prior to the Utah state TCJA tax correction) in 2019. The 2021 non-US GAAP EPS result exceeded management’s projection at the beginning of the year.

The 2021-ending weighted average number of diluted common shares (the number used to calculate diluted EPS) was 3,660 (in thousands) compared to 3,672 in 2020 and 3,739 in 2019. Dilution for “in the money” unexercised options for the year 2021 was 13 (in thousands) shares compared to 14 shares in 2020 and 18 shares in 2019. Actual outstanding common shares as of December 31, 2021 were 3,655.

30

Table of Contents

UTMD management believes the presentation of Net Income and EPS results excluding the tax liability estimate adjustments in 2021, 2020 and 2019 provides meaningful supplemental information to both management and investors that is more clearly indicative of UTMD’s bottom line results for comparison purposes.

US GAAP:

Non-US GAAP (excluding 2020 and 2021 UK DTL changes and TCJA tax adjustments in 2019):

Please note:  The tax provision adjustments only affected UTMD’s income tax provision, Net Income and EPS, not consolidated revenues (sales), GP, Operating Income or EBT.

The non-US GAAP financial measures also facilitate management’s internal comparisons for purposes of planning future performance. The non-US GAAP financial measures disclosed by UTMD should not be considered a substitute for or superior to financial measures calculated in accordance with US GAAP, and the financial results calculated in accordance with US GAAP and reconciliations to those financial statements should be carefully evaluated.

In short, UTMD realized a substantial recovery in 2021 revenues from 2020, and profitability returned to pre-pandemic levels.

Looking forward to 2022, there remains a significant lack of predictability of demand for UTMD’s medical devices due to governments’ now entrenched desire to control people’s health care as a result of the pandemic. Nevertheless, management believes that 2022 sales are likely to be higher than in 2021 due to UTMD having to raise prices of its devices, offset by a slower recovery OUS combined with a stronger USD reducing foreign currency sales.  Because the high rate of inflation in costs and the difficulty in hiring people which resulted from uncontrolled government spending continues to grow at a rate that is likely to exceed the rate of growth in sales, the Company also expects that the rate of growth in Gross Profit in 2021 will be lower than the growth in sales. A lower GPM will be partially offset by better absorption of UTMD’s high fixed IIA amortization expenses. For the sake of specificity and as an example, UTMD estimates that a 5% increase in sales in 2022 will yield a 1% increase in EBT compared to 2021 results.

ROE

Maintaining a high ROE remains a key management objective for UTMD in order to grow without diluting stockholder interest. ROE is the quotient of Net Income divided by average Stockholders’ Equity, but more specifically it is the product of the Net Income margin, productivity of assets and financial leverage. Although UTMD’s high Net Income margin is the primary factor that continues to drive its ROE, cash dividends to stockholders and repurchase of shares help in lowering average Stockholders’ Equity, reducing the denominator in calculating ROE. The income tax estimate adjustments in all three years had an impact on the overall ROE ratios using US GAAP Net Income.  UTMD’s 2021 ROE before stockholder dividends (with US GAAP Net Income) was 14.1%.  In comparison, 2020 ROE was 10.6% and 2019 ROE was 15.5%.

31

Table of Contents

Before dividends, UTMD’s 2021 ROE (using non-US GAAP Net Income) was 14.5% compared to 10.8% in 2020 and 14.9% in 2019, excluding the effect of the tax adjustments on Net Income.  The higher 2021 ROE compared to 2020 was the result of 37.7% higher non-US GAAP Net Income with 3.0% higher average Stockholders’ Equity. Average Stockholders’ Equity was $104,980 in 2021 compared to $101,957 in 2020 and $95,042 in 2019.  UTMD’s Stockholders’ Equity has more than doubled over the last ten years despite being reduced by $46 million in dividends and $14 million in share repurchases over that same period of time.

Maintaining a high ROE with the dilutive effect of rapidly growing Average Stockholders’ Equity (despite reductions from dividends and stock repurchases), while maintaining excellent Net Income results, suggests an excellent increase in stockholder value.  UTMD’s average ROE over the last 29 years was 25%.

Liquidity and Capital Resources

Cash Flows.

Net cash provided by operating activities totaled $21,203 compared to $20,137 in 2020 and $17,056 in 2019.  Net Profit at $3,990 higher in 2021 compared to 2020 allowed net cash provided by operating activities in 2020, including adjustments for depreciation and other non-cash operating expenses, along with changes in working capital and the tax benefit attributable to exercise of employee incentive stock options, to be $1,066 higher than in 2020. Total cash provided by operating activities was not in the magnitude of increased Net Profit as a result of changes in 2021 cash required for operating activities compared to 2020 changes (second order derivative), which were a function of the higher 2021 business activity related to recovering from restrictions on nonessential medical procedures during the pandemic, i.e. 1) a $1,705 higher use of cash as a result of increasing trade accounts receivable (A/R) $1,088 instead of the $617 decrease in 2020,  and 2) a $1,408 higher use of cash as a result of increasing inventories $485 instead of the $923 decrease in 2020. Additional changes that consumed more cash in 2021 than in 2020 included a $66 greater reduction in deferred income taxes, a $42 reduction in interest and other receivables instead of a $45 increase in 2020 and an $81 reduction in prepaid expenses and other current assets instead of a $108 increase in 2020.  In addition to higher Net Profit, greater cash was provided in 2021 compared to 2020 from $129 higher non-cash amortization expense, a $32 higher tax benefit attributable to exercise of employee stock options and a $106 higher increase in accrued expenses.

In investing activities, during 2021 UTMD used $552 in capital expenditures to purchase new molds and manufacturing equipment for new capabilities as well as to maintain, improve or expand existing operating capabilities, compared to investing $860 in 2020.

In 2021 UTMD received $560 and issued 11,702 shares of stock upon the exercise of employee stock options. Employees exercised a total of 13,711 option shares in 2021, with 2,009 shares immediately being retired as a result of optionees trading the shares in payment of the exercise price of the options.  Option exercises in 2021 were at an average price of $57.40 per share. The Company received a $39 tax benefit from option exercises in 2021. UTMD did not repurchase shares of its stock in the open market during 2021.

In comparison, in 2020 UTMD received $358 and issued 8,278 shares of stock upon the exercise of employee and director stock options.  Option exercises in 2020 were at an average price of $43.26 per share. The Company received a $7 tax benefit from option exercises in 2020. UTMD repurchased 87,000 shares of its stock in the open market during 2020 at an average cost of $80.19 per share.

In further comparison, in 2019 UTMD received $283 and issued 7,042 shares of stock upon the exercise of employee and director stock options.  Employees and directors exercised a total of 7,110 option shares in 2019, with 68 shares immediately being retired as a result of optionees trading the shares in payment of the exercise price of the options.  Option exercises in 2019 were at an average price of $40.80 per share. The Company received a $23 tax benefit from option exercises in 2019. UTMD repurchased 5,000 shares of its stock in the open market during 2019 at an average cost of $79.52 per share.

UTMD did not borrow in any of the three years 2019-2021.  Cash dividends paid to stockholders were $11,465 in 2021 compared to $4,116 in 2020 and $4,096 in 2019.

Management believes that future income from operations and effective management of working capital will continue to provide the liquidity needed to finance internal growth plans.  In an uncertain economic environment, UTMD’s cash balances allow management to operate with the long-term best interest of stockholders in mind.  Planned 2022 capital expenditures for ongoing operations are expected to be about the same in magnitude as depreciation of PP&E, although additional capital expenditure opportunities are being considered.

32

Table of Contents

Management plans to utilize cash not needed to support normal operations in one or a combination of the following: 1) in general, to continue to invest at opportune times in ways that will enhance future profitability; 2) to make additional investments in new technology and/or processes; and/or 3) to acquire a product line or company that will augment revenue and EPS growth and better utilize UTMD’s existing infrastructure.  If there are no better strategic uses for UTMD’s cash, the Company will continue to return cash to stockholders in the form of dividends and share repurchases when the stock appears undervalued.

Management's Outlook.

UTMD remains relatively small compared to many other companies, but its employees are experienced and remain diligent in their work. UTMD’s passion is in providing differentiated clinical solutions that will help improve the effectiveness of medical procedures and reduce health risks, particularly for women and their babies.

The safety, reliability and performance of UTMD’s medical devices are high and represent significant clinical benefits while providing minimum total cost of care.  UTMD will continue to leverage its reputation as a device innovator and reliable manufacturer which will responsively take on challenges to work with clinicians who use its specialty devices.  In doing so, UTMD will continue to differentiate itself, especially from commodity-oriented competitors.  In 2022, UTMD again plans to

1)  leverage distribution and manufacturing synergies by further integrating capabilities and resources in its multinational operations;

2)  expand manufacturing capacity at a time when resources are particularly scarce;

3)  focus on effectively differentiating the benefits of the Filshie Clip System in the U.S.;

4)  introduce additional products helpful to clinicians through internal product development;

5)  continue to achieve excellent overall financial operating performance;

6)  utilize positive cash generation to continue providing cash dividends to stockholders and make open market share repurchases if/when the UTMD share price seems undervalued; and

7)  remain vigilant for affordable accretive acquisition opportunities which may be brought about by difficult burdens on small, innovative companies.

The Company has a fundamental focus to do an excellent job in meeting clinicians’ and patients’ needs, while providing stockholders with excellent returns.  In the combined form of cash dividends and share repurchases, UTMD “returned” $11,465 (78% of Net Income) to stockholders in 2021 compared to $11,092 (103% of Net Income) in 2020 and $4,494 (31% of Net Income in 2019).

In 2021, the value of UTMD’s stock improved 19%, ending the year at $100.00/ share, while $3.14 in cash dividends/ share were paid. The DJIA, S&P 500 and NASDAQ (where UTMD is traded) indices were up 19%, 27% and 27% respectively in 2021.

In comparison, in 2020, the value of UTMD’s stock declined 22%, ending the year at $84.30/ share, while $1.12 in cash dividends/ share were paid.  The DJIA, S&P 500 and NASDAQ (where UTMD is traded) indices were up 7%, 16% and 44% respectively in 2020.

In further comparison, in 2019 the value of UTMD’s stock increased 30%, ending the year at $107.90/ share, while $1.10 in cash dividends/ share were paid. The DJIA, S&P 500 and NASDAQ indices were up 22%, 29% and 35% respectively in 2019.

The average compounded appreciation in UTMD stock value for the last 23 years was 12.6% per year, substantially outpacing all of the major indices. Adding dividends, UTMD stockholder value increased at an annually compounded rate of 13.4% over the last 23 years since 1998.

Combining share price appreciation as a result of a long term financial performance and a capital allocation strategy that includes opportunistic share repurchases with steadily growing quarterly cash dividends paid to stockholders since 2004, longer term UTMD stockholders have experienced excellent returns. Management is committed to continue that performance.

Off Balance Sheet Arrangements

None

33

Table of Contents

Contractual Obligations

The following is a summary of UTMD’s significant contractual obligations and commitments as of December 31, 2021:

Critical Accounting Policies and Estimates

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the reported amounts of revenues and expenses during the reporting period.

Management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. This forms the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Management has identified the following as the Company’s most critical accounting policies which require significant judgment and estimates. Although management believes its estimates are reasonable, actual results may differ from these estimates under different assumptions or conditions.

·Allowance for doubtful accounts: The majority of the Company’s receivables are with healthcare facilities and medical device distributors.  Although the Company has historically not had significant write-offs of bad debt, the possibility exists, particularly with foreign distributors where collection efforts can be difficult or in the event of widespread hospital bankruptcies.

·Inventory valuation reserves:  The Company strives to maintain inventory to 1) meet its customers’ needs and 2) optimize manufacturing lot sizes while 3) not tying-up an unnecessary amount of the Company’s capital increasing the possibility of, among other things, obsolescence. The Company believes its method of reviewing actual and projected demand for its existing inventory allows it to arrive at a fair inventory valuation reserve. While the Company has historically not had significant inventory write-offs, the possibility exists that one or more of its products may become unexpectedly obsolete for which a reserve has not previously been created. The Company’s historical write-offs have not been materially different from its estimates.

Accounting Policy Changes

The Company’s management has evaluated the recently issued accounting pronouncements through the filing date of these financial statements and has determined that the application of these pronouncements will not have a material impact on the Company’s financial position and results of operations.

34

Table of Contents