UFP Technologies Inc.
11/07/2025 | Press release | Distributed by Public on 11/07/2025 06:56
Quarterly Report for Quarter Ending SEPTEMBER 30, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking Statements
Some of the statements contained in this Report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). Management and representatives of UFP Technologies, Inc. (the "Company") also may from time to time make forward-looking statements. These statements are subject to known and unknown risks, uncertainties, and other factors, which may cause our or our industry's actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about the Company's prospects; the demand for its products, the well-being and availability of the Company's employees, the continuing operation of the Company's locations, delayed payments by the Company's customers and the potential for reduced or canceled orders; statements about expectations regarding customer inventory levels; statements about the Company's acquisition strategies and opportunities and the Company's growth potential and strategies for growth; expectations regarding customer demand; expectations regarding the Company's liquidity and capital resources, including the sufficiency of its cash reserves and the availability of borrowing capacity to fund operations and/or potential future acquisitions; anticipated revenues and the timing of such revenues; expectations about shifting the Company's book of business to higher-margin, longer-run opportunities; anticipated trends and potential advantages in the different markets in which the Company competes, including the medical, aerospace and defense, automotive, consumer, electronics, and industrial markets, and the Company's plans to expand in certain of its markets; statements regarding anticipated advantages the Company expects to realize from its investments and capital expenditures; statements regarding anticipated advantages to improvements and alterations at the Company's existing plants; expectations regarding the Company's manufacturing capacity, operating efficiencies, and new production equipment; statements about new product offerings and program launches; statements about the Company's participation and growth in multiple markets; statements about the Company's business opportunities; and any indication that the Company may be able to sustain or increase its sales, earnings or earnings per share, or its sales, earnings or earnings per share growth rates.
Investors are cautioned that such forward-looking statements involve risks and uncertainties that could adversely affect the Company's business and prospects, and otherwise cause actual results to differ materially from those anticipated by such forward-looking statements, or otherwise, including without limitation: our financial condition and results of operations, including risks relating to substantially decreased demand for the Company's products; risks relating to the potential closure of any of the Company's facilities or the unavailability of key personnel or other employees; risks that the Company's inventory, cash reserves, liquidity or capital resources may be insufficient; risks relating to delayed payments by our customers and the potential for reduced or canceled orders; risks related to customer concentration; risks related to global conflict or civil unrest to the efficacy of our manufacturing process; risks associated with the identification of suitable acquisition candidates and the successful, efficient execution of acquisition transactions, the integration of any such acquisition candidates, the value of those acquisitions to our customers and shareholders, and the financing of such acquisitions; risks related to our indebtedness and compliance with covenants contained in our financing arrangements, and whether any available financing may be sufficient to address our needs; risks associated with efforts to shift the Company's book of business to higher-margin, longer-run opportunities; risks associated with the Company's entry into and growth in certain markets; risks and uncertainties associated with seeking and implementing manufacturing efficiencies and implementing new production equipment; risks associated with governmental regulations and/or sanctions affecting the import and export of products, including global trade barriers, additional taxes, tariff increases, cash repatriation restrictions, retaliations and boycotts between the U.S. and other countries; risks associated with domestic, regional and global political risks and uncertainties; risks and uncertainties associated with growth of the Company's business and increases to sales, earnings and earnings per share; risks relating to cybersecurity, including cyber-attacks on the Company's information technology infrastructure, products, suppliers, customers and partners, and cybersecurity-related regulations; risks associated with our or third-party use of artificial intelligence technologies; risks associated with new product and program launches; risks relating to our performance and the performance of our counterparties under the agreements we have entered into; the risk that our two largest customers, on whom we depend for a substantial portion of our annual revenues, will not purchase the expected volume of goods under the supply agreements we have entered into with them because, among other things, they no longer require the products at all or to the degree they anticipated or because, among other things, Intuitive Surgical SARL, our largest customer, decides to manufacture the products itself or through one of its affiliates it obtains the products from other listed suppliers specified in our agreement; the risk that we will not achieve expected rebates under the applicable supply agreement; and risks relating to our ability to maintain
increased levels of production at profitable levels, if at all; or to continue to increase production rates and risks relating to disruptions and delays in our supply chain or labor force. Accordingly, actual results may differ materially.
In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential," and similar expressions intended to identify forward-looking statements. Our actual results could be different from the results described in or anticipated by our forward-looking statements due to the inherent uncertainty of estimates, forecasts, and projections, and may be materially better or worse than anticipated. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements represent our current beliefs, estimates and assumptions and are only as of the date of this Report. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this Report, in order to reflect changes in circumstances or expectations, or the occurrence of unanticipated events, except to the extent required by applicable securities laws. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed above and under "Risk Factors" set forth in Part I Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as well as the risks and uncertainties discussed elsewhere in this Report. We qualify all of our forward-looking statements by these cautionary statements. We caution you that these risks are not exhaustive. We operate in a continually changing business environment and new risks emerge from time to time.
Unless the context requires otherwise, the terms "we", "us", "our", or "the Company" refer to UFP Technologies, Inc. and its consolidated subsidiaries.
Overview
UFP Technologies is a contract development and manufacturing organization that specializes in single-use and single-patient medical devices. UFP is a vital link in the medical device supply chain and a valued outsourcing partner to many of the world's top medical device manufacturers. Our single-use and single-patient devices and components are used in a wide range of medical devices and packaging for minimally invasive surgery, infection prevention, wound care, wearables, orthopedic soft goods, and orthopedic implants.
Our current strategy includes further organic growth and growth through strategic acquisitions.
Net sales for the nine months ended September 30, 2025 increased 26.0% to $453.9 million from $360.4 million in the same period last year. The increase was primarily attributable to 31.1% growth in sales to customers in the medical market, which was largely due to sales from the 2024 and 2025 acquisitions (See Note 2 for further information regarding these acquisitions). These companies collectively contributed approximately $114.9 million in sales through the nine months ended September 30, 2025 compared to $34.6 million in the same period last year. Organic sales growth was 2.2% for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. Net sales from our largest two customers, Intuitive Surgical SARL and Stryker Corporation, were 27.1% and 17.1% of our total net sales in the three months ended September 30, 2025, respectively, and 25.3% and 20.4% of our total net sales in the nine months ended September 30, 2025, respectively.
In 2025, we executeda post-acquisition review of our AJR labor force's United States employment eligibility through E-Verify protocols. This review has resulted in significant workforce turnover during the year(the "AJR Labor Issue"). Attention spent by experienced employees training new direct and indirect employees in our standards and polices has decreased productivity and, therefore has created inefficiencies in our AJR operations. To address the AJR Labor Issue, we recruited legally eligible replacement associates. We anticipate that the third quarter of 2025 was the low point of labor inefficiencies, with gradual improvement beginning in the fourth quarter of 2025.
Impact of Tariffs
In 2025, the United States imposed increased tariffs on foreign imports into the United States, including all the countries in which we manufacture goods outside the United States and also the countries in which our customers operate. Although agreements have been made with various countries, the tariff policy environment remains dynamic, and we cannot predict what additional actions may ultimately be taken by the United States or other governments with respect to tariffs or trade relations, including retaliatory trade measures taken by other countries in response to existing or future United States tariffs or other measures.
To date, such tariffs have not had a material direct impact on our business, financial condition or results of operations. However, based upon tariffs being passed through by our raw material suppliers, we estimate an increase of approximately $6 million in annual price increases. It is our intention to pass these costs on to our customers. This remains a very dynamic changing environment and tariffs may cause (i) further increases in manufacturing costs, (ii) disruptions or delays to our supply chain, (iii) limitations on our ability to sell our products domestically or abroad, and (iv) reductions in sales volumes and gross margins for our products, any of which could negatively affect our business, results of operations and financial condition. We cannot anticipate, for example, whether there will be an adverse impact on demand for our products from customers who are responsible for payment of the tariffs on our shipments.
Results of Operations
Net Sales
Net sales for the three months ended September 30, 2025 increased approximately 6.5% to $154.6 million from sales of $145.2 million for the same period in 2024. Net sales increased despite more than $8 million of unfulfilled orders from the AJR Labor Issue during the third quarter of 2025. The increase is primarily due to increased sales to customers in the medical market of 7.3%. This increase includes sales from the 2024 and 2025 acquisitions, which collectively contributed approximately $38.6 million in sales during the third quarter of 2025 as compared to $34.6 million in the same period last year. Organic sales change for the third quarter of 2025 as compared to the third quarter of 2024 was essentially flat, primarily attributable to unfulfilled orders as a result of the AJR Labor Issue.
Net sales for the nine months ended September 30, 2025 increased approximately 26.0% to $453.9 million from sales of $360.4 for the same period in 2024. Net sales increased despite more than $15 million of unfulfilled orders as a result of the AJR Labor Issue during the nine months ended September 30, 2025. The increase in net sales is primarily due to increased sales to customers in the medical market of 31.1%. This increase includes sales from the 2024 and 2025 acquisitions, which collectively contributed approximately $114.9 million in sales during the nine months ended September 30, 2025 compared to $34.6 million in the same period last year. Organic sales growth, which was impacted by the AJR Labor Issue during the 2025 period, was 2.2% for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.
Gross Profit
Gross margin decreased to 27.7% for the three months ended September 30, 2025, from 28.6% for the same period in 2024. As a percentage of sales, material and labor costs collectively decreased 0.7% and overhead costs increased 1.6%. We estimate that the AJR Labor Issue added approximately $3.0 million in incremental labor cost to our cost-of-sales in the third quarter. We expect the labor inefficiencies to continue but significantly improve for the balance of 2025.
Gross margin decreased to 28.3% for the nine months ended September 30, 2025, from 29.0% for the same period in 2024. As a percentage of sales, material and labor costs collectively decreased 0.1% and overhead costs increased 0.8%. We estimate that the AJR Labor Issue added over$5.0 million in incremental labor cost to our cost-of-sales for the nine months ended September 30, 2025.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses ("SG&A") increased approximately 20.8% to $19.1 million for the three months ended September 30, 2025, from $15.8 million for the same period in 2024. The increase is primarily attributable to increased headcount and other back-office resources for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. As a percentage of sales, SG&A increased to 12.3% for the three months ended September 30, 2025, from 10.9% for the same three months in 2024.
SG&A increased approximately 29.5% to $56.5 for the nine months ended September 30, 2025, from $43.6 million for the same period in 2024. The increase is primarily attributable to SG&A from our 2024 and 2025 acquisitions, which collectively contributed approximately $10.1 million in SG&A during the nine months ended September 30, 2025, along with increased headcount and other back-office resources for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024 As a percentage of sales, SG&A increased to 12.4% for the nine months ended September 30, 2025, from 12.1% for the same nine months in 2024.
Change in Fair Value of Contingent Consideration
In connection with the acquisitions of Welch and Marble in 2024, and DAS Medical in 2021, we are required to make contingent payments, subject to the entities achieving certain financial performance thresholds. The contingent consideration payments for the Welch, Marble and DAS Medical acquisitions are up to $6 million, $500 thousand and $20 million, respectively. The fair value of the liability for the contingent consideration payments recognized upon the acquisition as part of the purchase accounting opening balance sheets totaled approximately $800 thousand, $400 thousand and $5.2 million for the Welch, Marble and DAS Medical acquisitions, respectively, and was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in the initial calculation were management's financial forecasts, a discount rate and various volatility factors. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. Contingent consideration is considered to be a Level 3 financial liability that is re-measured each reporting period. We paid approximately $5.3 million during the nine months ended September 30, 2025, related to contingent consideration. The fair value of the liability for the contingent consideration payments recognized at September 30, 2025, totaled approximately $5.8 million out of the remaining potential payments of $9.3 million. The change in fair value of contingent consideration for the Welch, Marble, and DAS Medical acquisitions for the three and nine months ended September 30, 2025, resulted in an expense of approximately $263 thousand and $789 thousand, respectively. The change in fair value of contingent consideration for the DAS Medical acquisition for the three and nine months ended September 30, 2024, resulted in an expense of approximately $238 thousand and $714 thousand, respectively. The change in fair value of contingent consideration for the acquisitions is included in change in fair value of contingent consideration in the condensed consolidated statements of comprehensive income.
Interest Expense, net
Net interest expense was approximately $2.4 million and $3.5 million for the three months ended September 30, 2025, and 2024, respectively. The decrease in net interest expense for the three months ended September 30, 2025, was primarily due to lower average debt in 2025 as compared to 2024. Interest income was immaterial.
Net interest expense was approximately $7.9 million and $4.7 million for the nine months ended September 30, 2025, and 2024, respectively. The increase in net interest expense for the nine months ended September 30, 2025 was primarily due to higher average debt in 2025 as compared to 2024. Interest income was immaterial.
Other (Income) Expense
Other income was approximately $78 thousand and other expense was approximately $70 thousand for the three months ended September 30, 2025 and 2024, respectively. The changes in other (income) expense are primarily generated by equity method investment income in 2025 and foreign currency transaction gains in 2025 and 2024.
Other income was approximately $10 thousand and other expense was approximately $30 thousand for the nine months ended September 30, 2025 and 2024, respectively. The changes in other (income) expense are primarily generated by equity method investment income in 2025 and foreign currency transaction gains in 2025 and 2024.
Income Taxes
We recorded tax expense of approximately 22.2% and 22.9% of income before income tax expense, for the three months ended September 30, 2025 and 2024, respectively. The change in the effective tax rate for the third quarter of 2025 is primarily related to changes in the allocation of income generated in various jurisdictions where we operate and the differing tax rates in these jurisdictions.
We recorded tax expense of approximately 19.4% and 21.0% of income before income tax expense, for each of the nine months ended September 30, 2025 and 2024, respectively. The decrease in the effective tax rate for the current period as compared to the prior period is largely due to changes in the allocation of income generated in various jurisdictions where we operate as well as increased discrete tax benefits associated with vested equity and a state tax refund.
Liquidity and Capital Resources
We generally fund our operating expenses, capital requirements, and growth plan through internally generated cash and bank credit facilities.
Cash Flows
Net cash provided by operations for the nine months ended September 30, 2025 was approximately $75.1 million and was primarily a result of net income generated of approximately $50.7 million, depreciation and amortization of approximately $14.2 million, and share-based compensation of approximately $6.5 million for the nine months ended September 30, 2025.
Net cash used in investing activities during the nine months ended September 30, 2025 was approximately $23.7 million and was primarily the result of additions of manufacturing machinery and equipment and various building improvements, as well as the acquisitions of AJR Specialty, AJR Custom Foam, TPI, and UNIPEC.
Net cash used for financing activities was approximately $47.3 million during the nine months ended September 30, 2025 and was primarily the result of payments on the revolving line of credit of approximately $33.9 million and principal payments of long-term debt of approximately $9.4 million.
Outstanding and Available Debt
On June 27, 2024, we, as the borrower, entered into a secured $275 million Amended and Restated Credit Agreement (the "Third Amended and Restated Credit Agreement") with certain of the our subsidiaries (the "Subsidiary Guarantors") and Bank of America, N.A., in its capacity as the initial lender, Administrative Agent, Swingline Lender and L/C Issuer, and certain other lenders from time-to-time party thereto. The Third Amended and Restated Credit Agreement amends and restates the Company's prior credit agreement, originally dated as of December 22, 2021.
The credit facilities under the Third Amended and Restated Credit Agreement consist of a secured term loan to us of $125 million and a secured revolving credit facility, under which we may borrow up to $150 million. The Third Amended and Restated Credit Facilities mature on June 27, 2029. This maturity date is subject to acceleration and we could be subject to additional fees and expenses in certain circumstances should one or more events of default described in the Third Amended and Restated Credit Agreement occur. The secured term loan requires quarterly principal payments of $3,125,000 that commenced on December 31, 2024. The proceeds of the Third Amended and Restated Credit Agreement may be used for general corporate purposes, including funding certain acquisitions, as well as certain other permitted acquisitions. Our obligations under the Third Amended and Restated Credit Agreement are guaranteed by Subsidiary Guarantors and secured by substantially all of our assets.
The Third Amended and Restated Credit Facilities call for interest at the Secured Overnight Financing Rate ("SOFR") plus a margin that ranges from 1.25% to 2.25% or, at our discretion, the bank's prime rate plus a margin that ranges from .25% to 1.25%. In both cases the applicable margin is dependent upon Company performance. Under the Third Amended and Restated Credit Agreement, we are subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The Third Amended and Restated Credit Agreement contains other covenants customary for transactions of this type, including restrictions on certain payments, permitted indebtedness and permitted investments.
At September 30, 2025, we had approximately $146.1 million in outstanding borrowings under the Third Amended and Restated Credit Agreement and also had approximately $0.7 million in standby letters of credit outstanding, drawable as a financial guarantee on worker's compensation insurance policies. At September 30, 2025, the weighted average interest rate was approximately 5.5% and we were in compliance with all covenants under the Third Amended and Restated Credit Agreement.
Long-term debt consists of the following (in thousands):
| September 30, 2025 | |||||
| Revolving credit facility | $ | 33,620 | |||
| Term loan | 112,500 | ||||
| Total long-term debt | 146,120 | ||||
| Current portion | (12,500) | ||||
| Long-term debt, excluding current portion | $ | 133,620 | |||
Future maturities of long-term debt at September 30, 2025 are as follows (in thousands):
| Term Loan | Revolving credit facility | Total | |||||||||||||||
| Remainder of 2025 | $ | 3,125 | $ | - | $ | 3,125 | |||||||||||
| 2026 | 12,500 | - | 12,500 | ||||||||||||||
| 2027 | 12,500 | - | 12,500 | ||||||||||||||
| 2028 | 12,500 | - | 12,500 | ||||||||||||||
| 2029 | 71,875 | 33,620 | 105,495 | ||||||||||||||
| $ | 112,500 | $ | 33,620 | $ | 146,120 | ||||||||||||
Future Liquidity
We require cash to pay our operating expenses, purchase capital equipment, and to service our contractual obligations. Our principal sources of funds are our operations and our Third Amended and Restated Credit Agreement. We generated cash of approximately $75.1 million from operations during the nine months ended September 30, 2025. We cannot guarantee that its operations will generate cash in future periods. The Company's longer-term liquidity is contingent upon future operating performance and the availability of draws on its revolving credit facility. Further, the economic uncertainty resulting from events including inflation, tariffs, bank failures, and other factors beyond our control could affect our long-term ability to access the public markets and obtain necessary capital in order to properly capitalize and continue operations.
We plan to continue to add capacity to enhance operating efficiencies in our manufacturing plants and accommodate anticipated growth in demand. We may consider additional acquisitions of companies, technologies, or products that are complementary to our business. We believe that our existing resources, including our revolving credit facility, together with cash expected to be generated from operations, will be sufficient to fund our cash flow requirements, including expected capital expenditures, through the next twelve months.
We may also require additional capital in the future to fund capital expenditures, acquisitions, or other investments. These capital requirements could be substantial. We anticipate that any future expansion of our business will be financed through existing resources, cash flow from operations, our revolving credit facility, or other new financing. We cannot guarantee that we will be able to meet existing financial covenants or obtain other new financing on favorable terms, if at all.
Enactment of the "One Big Beautiful Bill Act" (OBBBA)
On July 4, 2025, President Donald Trump signed the "One Big Beautiful Bill Act" (OBBBA) into law, which is considered the enactment date under U.S. GAAP. Key corporate tax provisions include the restoration of 100% bonus depreciation, immediate expensing for domestic research and experimental expenditures, changes to Section 163(j) interest limitations, updates to GILTI and FDII rules, amendments to energy credits, and expanded Section 162(m) aggregation requirements. In accordance with ASC 740, the effects of the new tax law have been recognized in the period of enactment. The impact of OBBBA to our income tax expense is immaterial.
Critical Accounting Estimates
There have been no material changes to the our Critical Accounting Estimates, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
Commitments and Contractual Obligations
There have been no material changes outside the ordinary course of business to our contractual obligations and commitments, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
UFP Technologies Inc. published this content on November 07, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 07, 2025 at 12:56 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]