UFP Technologies Inc: Form 10-Q for the period ended Mar 31, 2026

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 and non-medical, 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; expectations that the Company will receive reimbursement for tariff-related costs in the form of vendor credits from suppliers that previously passed such tariffs through to the Company, whether directly or through price increases; 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 net 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 or uncertainties, cash repatriation restrictions, retaliations and boycotts between the U.S. and other countries; risks associated with the usage of artificial intelligence technologies; risks associated with domestic, regional and global political risks and uncertainties; risks associated with the U.S. and Iran conflict; 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, and the potential consequences of the Cyber Incident (as defined in Item 1C, Cybersecurity in our Annual Report on Form 10-K for the year ended December 31, 2025) could result in data or financial loss, reputational harm, business disruption, damage to our relationships with customers, consumers, employees and third parties on which we rely, litigation, regulatory investigations, enforcement actions or other negative impacts under cybersecurity related regulations or otherwise; 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, our largest customers, decide 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 year ended December 31, 2025, 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 three months ended March 31, 2026 increased 4.1% to $154.2 million from $148.1 million in the same period last year. The increase was primarily attributable to 5.9% growth in sales to customers in the medical market, which was largely due to growth in sales to customers in the Robotic Surgery, Patient Surfaces and Support and Interventional and Surgical sub-markets. Net sales from our largest two customers, Stryker and Intuitive Surgical SARL, were 24.8% and 22.1% of our total net sales in the three months ended March 31, 2026, respectively, compared to 24.0% and 21.4% in the same period last year.

In 2025, we executed a post-acquisition review of our AJR Enterprises, LLC (“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 policies has decreased productivity and therefore has created inefficiencies in our AJR operations. To address the AJR Labor Issue, we recruited legally eligible replacement associates.

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, particularly in light of recent Supreme Court decisions. In February 2026, the U.S. Supreme Court ruled that these tariffs levied under the International Emergency Economic Powers Act (“IEEPA”) are unconstitutional. As a result of this ruling, the U.S. Court of International Trade issued an order directing the U.S. Customs and Border Protection (“CBP”) agency to begin formalizing a process for refunds. On April 20, 2026, the CBP launched an online portal that can be used to submit IEEPA tariff refund requests. All requests will be reviewed by the CBP to determine validity prior to the issuance of refunds. During the three months ended March 31, 2026, we have experienced a decreased effect of tariffs on our business as compared to the second half of 2025. In the coming quarters, we expect to receive reimbursement of tariff costs in the form of vendor credits, from suppliers who have previously passed through tariffs to us either directly or through price increases.

Cyber Incident

On or about February 14, 2026, we detected the Cyber Incident (as defined in Item 1C, Cybersecurity in our Annual Report on Form 10-K for the year ended December 31, 2025). As of the date hereof, the incident has not had a material impact on our financial systems, operations or financial condition. While our investigation and assessment of this incident is ongoing, as of the date of this filing, our IT systems are operational in all material respects and we do not believe the incident is reasonably likely to materially impact our financial condition or results of operations. There can be no assurance that the Cyber Incident or any future cybersecurity incidents will not have a material impact on our future operations, financial systems or financial condition. See Item 1A “Risk Factors” within our Annual Report on Form 10-K for the year ended December 31, 2025 within our Annual Report on Form 10-K for the year ended December 31, 2025 under the headings “Security breaches, including cybersecurity incidents and other disruptions could compromise our information, expose us to liability and harm our reputation and business” and “We experienced a material information technology (“IT”) systems incident in February 2026, which could result in a number of potentially unknown outcomes, including but not limited to, litigation, regulatory investigations or enforcement actions, or reputational harm, any of which could have a material impact on our business operations, financial condition, or results of operations,” and the discussion in Item 1C, Cybersecurity, within our Annual Report on Form 10-K for the year ended December 31, 2025.

Results of Operations

Net Sales

Net sales for the three months ended March 31, 2026 increased approximately 4.1% to $154.2 million from sales of $148.1 million for the same period in 2025. The increase is primarily due to increased sales to customers in the medical market of 5.9%, partially offset by a 15% decline in sales to customers in the non-medical markets. This increase is primarily due to increased sales to customers in the Robotic Surgery, Patient Surfaces and Support and Interventional and Surgical sub-markets. These increases were partially offset by a decline in sales to customers in the Wound Care sub-market due to destocking at two customers which is expected to continue until the third quarter of 2026.

Gross Profit

Gross margin increased slightly to 28.8% for the three months ended March 31, 2026, from 28.5% for the same period in 2025, driven by increased efficiencies primarily in the Robotic Surgery sub-market.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) increased approximately 12.3% to $21.0 million for the three months ended March 31, 2026, from $18.7 million for the same period in 2025. The increase is primarily attributable to increased headcount and other back-office resources of approximately $0.8 million, legal expenses of approximately $0.5 million most of which will not recur, and an increase in RSU stock compensation expense of approximately $0.6 million for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. As a percentage of sales, SG&A increased to 13.6% for the three months ended March 31, 2026, from 12.6% for the same three months in 2025.

Interest Expense, net

Net interest expense was approximately $1.7 million and $2.8 million for the three months ended March 31, 2026, and 2025, respectively. The decrease in net interest expense for the three months ended March 31, 2026, was primarily due to lower average debt in the three months ended March 31, 2026 as compared to the same period in 2025. Interest income was immaterial.

Other Expense

Other expense was less than $0.1 million for the three months ended March 31, 2026 and 2025. Changes in other expense are primarily generated by equity method investment income and foreign currency transaction gains.

Income Taxes

We recorded tax expense of approximately 19.0% and 15.3% of income before income tax expense, for the three months ended March 31, 2026 and 2025, respectively. The increase in the effective tax rate is due to large favorable discrete items in the first quarter of 2025 associated with equity compensation 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 three months ended March 31, 2026 was approximately $3.2 million and was primarily a result of net income generated of approximately $17.5 million, depreciation and amortization of approximately $4.9 million, and share-based compensation of approximately $2.7 million for the three months ended March 31, 2026, offset by changes in operating assets and liabilities of approximately $24.5 million, primarily driven by a $15.7 million increase in receivables, net due to increased sales volume in March 2026 as compared to December 2025.

Net cash used in investing activities during the three months ended March 31, 2026 was approximately $1.7 million and was comprised of additions of manufacturing machinery and equipment and various building improvements.

Net cash used for financing activities was approximately $1.6 million during the three months ended March 31, 2026 and was primarily the result of payments on the revolving line of credit of approximately $28.1 million and principal payments of long-term debt of approximately $3.1 million, partially offset by proceeds from advances on revolving line of credit of $33.4 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 our 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 March 31, 2026, we had approximately $137.6 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 March 31, 2026, the weighted average interest rate was approximately 5.0% 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):

Future maturities of long-term debt at March 31, 2026 are as follows (in thousands):

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 $3.2 million from operations during the three months ended March 31, 2026. We cannot guarantee that its operations will generate cash in future periods. Our 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.

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, 2025.

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, 2025.

There have been no material changes in our market risks as previously disclosed in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2025.

The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Report (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

The Company closed on the acquisitions of AJR Specialty and AJR Custom Foam in the second quarter of 2025 and TPI and UNIPEC in the third quarter of 2025. The 2025 acquisitions’ total assets and net sales constituted approximately 2.9% and 3.8%, respectively, of the Company’s consolidated total assets and net sales as shown on our condensed consolidated financial statements as of and for the three months ended March 31, 2026. As the acquisitions occurred in the second and third quarters of fiscal 2025, the Company excluded all of the acquired businesses internal control over financial reporting from the scope of the assessment of the effectiveness of the Company’s disclosure controls and procedures. This exclusion is in accordance with the general guidance issued by the Staff of the Securities and Exchange Commission that an assessment of a recently acquired business may be omitted from the scope within the first year of acquisition if specified conditions are satisfied.

The Company faces a number of uncertainties and risks that are difficult to predict and many of which are outside of the Company's control. For a detailed discussion of the risks that affect our business, you should consider carefully the risks and uncertainties described in this Quarterly Report on Form 10-Q as well as our other public filings with the SEC including Part I, Item IA, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no material changes from the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2025, with the exception of the additional Risk Factors noted below.

The conflict between the United States, Israel, and Iran and related geopolitical instability may adversely affect our business and results of operations.

In February 2026, the United States and Israel launched coordinated military strikes against Iran, which retaliated with missile attacks across the region. Although we have no operations in the Middle East, the ongoing conflict, and any further escalation, including additional military actions, retaliatory measures, sanctions, trade or transportation disruptions, cyberattacks, or other governmental or market responses, could significantly disrupt global energy supplies, increase energy prices, heighten inflationary pressures on our input costs and supply chain, adversely affect global supply chains, our customers and vendors, commodity prices, currency exchange rates, financial markets and the general economy.

A significant portion of our polymer spend is petroleum-based, and rising petroleum prices resulting from the conflict have increased, and may continue to increase, the cost of materials we source, manufacture, or distribute. Under our agreements with our customers, we are generally able to pass through many of these costs but there is no assurance this will not adversely affect demand for our products. We have also faced, and may continue to face, indirect financial risks passed through the supply chain, including disruptions that could result in higher prices for our products and the resources needed to produce them or delays in our ability to timely manufacture and deliver our products.

While we do not expect the conflict to have a material effect on our business, financial condition, or results of operations, we are unable to predict the extent or nature of any future impacts at this time.