Q1 2025 UFP Technologies Inc Earnings Call
Speaker Change: Good day and welcome to the UFP Technologies first quarter of 2025 earnings call. All participants will be in a listen only mode. And should you need any assistance on today's call, please ignore conference specialists by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star or one on your telephone keypad. To withdraw a question, please press star, then two.
Speaker Change: Also, please be aware that today's call is being recorded. I would now like to turn the call over to the Chief Financial Officer, Ron LaTai. Please go ahead, sir.
Ron LaTie: Thank you, Operator. Good morning and thank you for joining us on our first quarter 2025 earnings conference call.
Ron LaTie: with me on today's call is our CEO and Chairman Jeff Bailey.
Ron LaTie: Today we will be making forward-looking statements within the meaning of the U.S. private security's litigation reform act of 1995, the accuracy of which is subject to risks and uncertainties.
Ron LaTie: Wherever possible, we will try to identify those forward looking statements by using words such as belief, expect, anticipate, pursue, forecast, and similar expressions.
Ron LaTie: Our forward-looking statements are based on our estimates and assumptions as of today. It should not be relied upon as representing our estimates or views on any subsequent date.
Ron LaTie: Please refer to the Questionary Statement regarding forward-looking information and the risk factors in our most recent 10K, including disclosure of the factors that could cause results to differ materially from those expressed or implied.
Ron LaTie: During this call, we will discuss non-GAAP financial measures which include organic sales growth, adjusted operating income, SGA, and EPS, and EBITDA, and adjusted EBITDA.
Ron LaTie: A reconciliation of GAP to non-GAAP measures discussed in this call is contained in the associated press release and is available on any investor relations section of our website.
I'll now turn the call over to Jeff.
Jeff Bailey: Thank you Ron, and thank you to everyone joining the call.
Jeff Bailey: UFP has strong first quarter, revenue grew 41%, operating income increased 45%, and EPS grew 35% to $2.21.
Jeff Bailey: Our medical business grew 50% driven by strong demand in the safe patient handling space which has grown significantly since UFP acquired AJR.
Jeff Bailey: This growth was the result of winning new market share combined with higher overall market demand.
This is now our second largest segment behind robotic surgery.
Jeff Bailey: We also saw impressive growth in our interventional and surgical, infection prevention, orthopedics, and advanced wound care segments, which all grew by more than 25%.
Jeff Bailey: The scale and rapid growth of our safe patient handling business are strategically important as it adds a new high growth market segment to our medical portfolio and further diversifies our company.
Jeff Bailey: Our recent acquisitions have performed very well. Our integrations are on track and may have been solid contributors to our growth.
Jeff Bailey: Our organic growth was 2.3%. 5.4% growth in mid-tech was offset by a 16.3% decline in advanced components as we continue to focus our resources on our fastest growing mid-tech opportunities.
This was in line with our expectations for the quarter.
Jeff Bailey: Robotic surgery after multiple years of 20% plus growth declined 6% in Q1. It is anticipated to have only modest growth in 2025 following the completion of an inventory bill by our largest customer in 2024.
Our robotic surgery business remains an exciting long-term growth opportunity.
We have two major new programs launching later this year.
Jeff Bailey: We are an ongoing discussions with our largest robotic surgery partner on the ways to support more of their needs that are covered in our current agreement.
Jeff Bailey: During the quarter, we can make progress in our key strategic initiatives.
Jeff Bailey: Highlights include, signing a key customer agreement in a safe patient handling space which provides exclusive manufacturing rights through mid-2030.
Jeff Bailey: UFP and our customer will both invest during the contract period and share the savings that are anticipated upon transfer of the programs to our lower cost of minikin in public location.
Jeff Bailey: This agreement supports a large portion of the revenue acquired with the AGR business.
which also has been projected above average market growth rate.
Jeff Bailey: During the quarter, we also made progress on our Dominican Republic expansion plans.
Jeff Bailey: We took occupancy of a new least facility in Santiago, roughly doubling the size of our operation and have equipment on order to accommodate the growing book of safe patient handling business covered in our new exclusive agreement.
Jeff Bailey: We also completed the installation and qualification of new equipment for our two new robotics surgery programs scheduled to launch later this year.
Jeff Bailey: In addition, we have a few other approved robotic surgery programs beginning to scale.
Jeff Bailey: Finally, building preparations underway for the fifth facility in our La Romana Robotic
Jeff Bailey: The new building includes an expanded R&D lab engineering offices to warehouse space.
We expect to take occupancy in the coming months.
Jeff Bailey: Are expanding Dominican Republic manufacturing design capabilities or a key competitive differentiator in the important component of our growth strategy.
Jeff Bailey: Looking ahead, we continue to be bullish about our future. We do not anticipate a material impact from the tariffs. Ron will expand on this in his comments.
Jeff Bailey: We continue to execute our two-pronged growth strategy focused on expanding our business in the best-paid growth markets and searching for strategic acquisitions that increase our value to customers.
Ron LaTie: We are in active discussions with multiple acquisition opportunities as we speak and have recently completed a small fold-in acquisition in St. Charles, Illinois that provides additional manufacturing space capacity.
Ron LaTie: And direct labor talent to help meet the growing needs of our safe patient handling business.
Ron LaTie: In addition, we will continue to expand our product development capabilities, maintaining innovative culture that has driven our success to date.
Ron LaTie: And finally, we are focused on continuously improving all aspects of our business, increasing our efficiency and reducing our costs.
Ron LaTie: I'm pleased with our progress and excited about our future. I'll now hand it back over to Ron to give a bit more color on our results.
Ron LaTie: Thank you, Jeff, before discussing our operating results, I'd like to touch on tariffs.
Ron LaTie: As Jeff mentioned, we do not expect that terrorists will have a material direct impact on our operating results.
That expectation is based on what we know today.
Ron LaTie: As you all know, the global trade environment is very dynamic so this could change.
Ron LaTie: Based on shipments we make from our manufacturing operations outside of the United States to customers within the United States, for which we are responsible for importation, we have approximately $8 million of sales that would be subject to the 10% tariffs.
Ron LaTie: Our management is confident that most of this resulting $800,000 in tariffs will be passed on.
Ron LaTie: What is unknown is whether there will be an impact on demand from our customers who are subject to tariffs on our shipments.
Ron LaTie: In addition, we do not know if there will be any inflationary impact on our incoming
Ron LaTie: Although virtually all U.S. consumer materials are sourced from U.S. suppliers, it is unknown if any of their components are sourced globally.
Now to operating results.
Speaker Change: As Jeff mentioned, sales for the first quarter increased 41.1% to 148.1 million from 105 million last year.
First quarter sales to the medical market increase 50.4 percent.
Speaker Change: to 135.4 million while sales to all of the markets decreased 15% to 12.7 million from 15 million as we continue to focus resources on our fastest growing med tech opportunities.
Speaker Change: Gross Profit as a percentage of sales or gross margin decrease slightly to 28.5% for the first quarter of 2025 from 28.6% in the first quarter of 2024.
Speaker Change: As anticipated, we had some inefficiency in our newly acquired AJR operations related to onboarding many new direct labor associates.
Speaker Change: We were able to offset most of it by leveraging fixed overhead costs throughout the company.
Speaker Change: It is anticipated that the inefficiency at HAR will continue through the second quarter as we continue to onboard new associates.
Speaker Change: Adjusted operating income for the quarter increased 49.5% to 25.8 million This growth rate exceeds our sales growth rate as we were able to leverage S-GNA expenses.
Speaker Change: Our effective tax rate for the first quarter of 2025 was 15.3%, reflecting the positive discrete impact of vested equity and a state tax refund.
Speaker Change: Well, modeling purposes, I would suggest a normalized rate of 21-23% for 2025.
Speaker Change: The first quarter gap in adjusted diluted earnings per share increased 34.8% and 39.5% to $2.21 and $2.47 respectively.
[inaudible]
First quarter adjusted EBIDA increased 45.9% to 30.2 million.
Speaker Change: During our first quarter, which generated 13.8 million in cash from operations, paid down approximately $7 million in debt and ended the quarter with a leverage ratio below 1.5 times.
Capital expenditures were 2.8 million.
Speaker Change: With that, I now turn it back to the operator for questions.
Speaker Change: We will now begin the question and answer session. To ask a question you may press star but want on your telephone keypad.
Speaker Change: If you're using a speaker phone, please pick up your headset before pressing the keys. And to withdraw a question, please press star, then two.
Speaker Change: At this time we will pause just momentarily to assemble our roster.
Jason Schmidt: And our first question here will come from Jason Schmidt with Lake Street. Please go ahead.
Jason Schmidt: Hey guys, thanks for taking my questions. Just looking at the robotic surgery business, just want to clarify the comments surrounding modest growth for 2025. Is that that business as a whole or is that at your largest customer within that business?
Jason Schmidt: It's actually both. So we have a forecast from our largest customer that slightly exceeds last year's, you know, low single digit growth. And then for the robotic surgery as a whole, because we have other platforms coming on, they will stack onto that growth.
Jason Schmidt: So, combined still, low single digits. The decline in the first quarter of 6%
Jason Schmidt: is partly because Q1 of last year had some large equipment sales.
Jason Schmidt: that we are wrapping up our capacity for our biggest customer. So the actual unit sales is probably closer to even or even a modest growth in Q1. But we do expect both the largest customer and the group as a whole to grow.
Speaker Change: Okay, that's really helpful. And then I know you mentioned at that largest customer you're potentially working on additional programs. I mean there's been a lot speculation on your relationship and specifically kind of share shifts going on at that customer.
Speaker Change: Yeah, currently our understanding is we probably have about two-thirds of the share.
Speaker Change: that our largest customer does a small amount to themselves and another competitor does a small amount. We used to share about 50-50 with a competitor.
Speaker Change: Slowly over time, we gained share. And similarly, at the same time, our largest customer brought on some of their own capacity. They had been working on this for years. It's very important for them to have a bulletproof supply chain. It was a...
Speaker Change: an opportunity for them to control their own destiny of need be. To that helpful to us if they're successful in this venture, because they have a two supplier mandate and so if they're successful and can be a part of the
Speaker Change: and they have assured us that they will always have a manual drapes of virus part of their future and then so we feel good about it.
Speaker Change: Okay, I appreciate that caller and then just the last one from me and I'll jump back into Q. Just give them macro backdrop here. Are you seeing any pockets of excess inventory at any of your customers?
Speaker Change: We are not actually almost like the the destocking that was holding us back of some of the other markets seems to be behind us because a lot of them have come back as other markets we talked about [inaudible]
Speaker Change: So it seems like a lot of those issues are behind us and we're back to business as usual. We don't have perfect visibility when people are building inventory. Our understanding is that most of what we're building is exactly for a current demand that our customers.
Great. Thanks a lot, guys.
You're welcome.
Speaker Change: And our next question will come from Brett Fishbin with Keybank. Please go ahead.
Speaker Change: Hey, good morning. Thanks for taking the questions. I'll switch gears a little bit to start. Some of the commentary around segments outside of robotics, such as interventional surgical infection prevention, ortho, wound care, awesome, you know, pretty positive this quarter with the 25% metric was wondering if you could maybe just like touch on a couple of those different areas and like walk through some of the acceleration in growth and then like higher thinking about the outlook for the extra robotics medical business for the rest of 25. [inaudible]
Speaker Change: Yes, sure. So, I'll start with infection prevention. So, infection prevention, as we've talked about in the past, we've been doing a lot of development, particularly they were on external catheters.
Speaker Change: So we're enjoying growth in these new products as well as in some of our conventional products. And so, again, I think that if they were impacted by the destocking that seems to be behind us. So we have a blend of our base business growing combined with new products. And so that one has been a nice grower for us.
Speaker Change: and same with intervention on surgical. We're seeing the de-stocking headwinds behind us customers that have been quiet starting to reorder in in some of these
Speaker Change: Market segments overlap with our new acquisitions, so we bind companies with these markets in mind, and so we're enjoying growth both internally at UFP as well as through our acquisitions.
Speaker Change: In many cases, because we're teamed up as one company, we're growing faster than they would have on their own. And we've seen a bunch of examples of that, particularly with our largest acquisition.
Speaker Change: and that's around the patient surfaces. So patient surfaces, when we watt AGR, Revenue was about 75 million. They had one contract.
Speaker Change: to move to transfer to the DR. And since we've teamed up now we have three. And so the majority of their business is now under an exclusive contract. So now that we were one company with more capabilities.
Speaker Change: and more substance and ability to transfer, you know, we have sort of earned more of their business and more of their support. So our acquisitions are growing faster because they're part of our business and it's true for really for all of them. They've all enjoyed additional growth by being part of the UFP team.
Speaker Change: All right, thank you. And then maybe I'll just ask a follow-up where you left off there. The acquisition revenue definitely stood out as above expectations this quarter. Really taking another sequential step up to where it had been the previous couple of quarters.
Speaker Change: I guess maybe like walk through what I think you touched on it a little bit, but what was driving the extra seven or eight million in revenue compared to four to from the acquisitions.
Speaker Change: And are you now at the point with AJR where you do have you know close to you know the vast majority of that market or is there still some shared in that's going to take place as you build out more capacity.
Speaker Change: I think we've won most of what we're going to win because I think we're their primary supplier at this point.
Speaker Change: So infection prevention was the biggest driver of our growth and it was kind of the biggest surge
Speaker Change: So, that's the easiest one to track. It's all brand new business, but I think that it was hard for us to report on it because we didn't own them a year ago, but our understanding is they've grown 40 plus percent.
Speaker Change: since this time a year ago. So that shows you how explosive that growth is in that segment. It's now our second largest segment with explosive growth, so it's a winning combination. And we are making things as fast as we possibly can.
It's a little...
Small acquisition that we did.
Speaker Change: was with space and talent mind. It was two little small sister companies of AJR that we didn't originally buy. You know, they occupied a decent portion of the building that we're in and they had some talents and equipment.
Speaker Change: And so our goal was to get more space to fit the equipment that we're buying, to get additional people to do the direct labor work. And so that was just a little fold in but it's causing or helping us instantly get some relief.
Speaker Change: Yeah, and Brad, it's Ron, good morning. So yeah, if you go back to the AK that we filed with the AJR acquisition the run rate, the trailing 12 run rate was 75 million and revenues which would imply about 19 million dollars per quarter.
Speaker Change: In the first quarter of 25, we did 29.2 million at AJR so that sort of emphasizes the growth that Jeff was referring to.
Speaker Change: Alright super helpful and last question from the song the new product opportunities in robotic surgery. Is there anything more you can tell us about what you're working on with those initiatives it sounds like maybe at least one of them is with your large customer in that and market. And just in terms of like how you're thinking about the guidance setup like when you talk about. You
Speaker Change: You know, like low single digit growth and robotics is there a meaningful contribution from those new products specifically or more of like a ramp up period this year and benefit to 26. Thanks very much for taking the questions.
Sure
Speaker Change: It's hard to provide a lot of detail, but this was one of the benefits of us moving to low cost country. I mean, we had a couple of objectives. One is because our customers asked us to be there. And number two, and we tended to lose business.
Speaker Change: It tends to be toward the end of a product life cycle when our customers had to take costs out and they moved it to low cost country. So our primary goal was to lose less but the secondary benefit we got was when we moved there.
Speaker Change: Two of our customers said now that you're there we'd like to transfer business that we are already doing to you so both of these are our programs that are up and running.
Speaker Change: So, it's not going to be this long ramp that requires market adoption. It's more like us getting up and running and doing the business. So, they're going to launch in the second half of the year. It's two separate customers, two separate programs.
Speaker Change: but we expect meaningful revenue starting in 2026 and modest revenue this year actually.
All right, very helpful. Thanks again.
You're welcome, thank you.
Speaker Change: And our next question will come from just in ages with C.J.S. Please go ahead.
Time, morning off.
Hello?
Speaker Change: I appreciate you know the color on the tariffs was hoping you could just give us an understanding on how some of your competitors might be impacted by the tariffs that might actually benefit you put you in a better competitive position.
Speaker Change: It's hard to tell originally it looked like when there was a big battle going on with Mexico that we would be beneficiaries.
Speaker Change: because some of our competitors were in Mexico. It seems like a lot of that has gone away, and it's been exempt under a different act. So there's no like instant gratification versus our Mexican competitors, but those that are importing from China or competitors in China, and we have won some business back particularly in the safe patient handling that came from China. I think that we have a leg up.
Speaker Change: So those guys, for at least the short term, have no abilities that can even us at all. But I don't think this is instant gratification from the tariffs. We do have about two thirds of our manufacturing and two thirds of our revenue in the U.S.
Speaker Change: All right, that's very helpful. And then one more, just on capital allocation priorities. You know, you guys paid down debt. Maybe you can give us an update on some larger acquisitions that you're looking at, maybe, you know, smaller than kind of those two sister company of the BJR that you mentioned.
Speaker Change: Yeah, we have a number of companies we're talking to. We have mentioned in the past that we're focused on gaining more skills and injection moldings. So we're looking at a number of different injection molders with the goal of upping our game in that space.
Speaker Change: Most of the things that were in advanced talks with now are smaller acquisitions. None of them are enormous. But we do have one large puppetry that we're looking at that would be very substantial if it were to come to fruition. But I would say it's pretty far out in the future. We're in early days of that discussion.
Speaker Change: Alright, very helpful. Congrats on the quarter. Thanks for taking the questions.
Thanks very much.
Speaker Change: And our next question will come from Andrew Cooper with Raymond James. Please go ahead.
Andrew Cooper: Hey everybody thanks for the time. Maybe just starting with
Andrew Cooper: The large customer and safe patient handling, you know, the 8K talks about some price reductions as you make these transfers. Can you give a little sense for the magnitude of?
Andrew Cooper: Those reductions in terms of what that may do to just optical revenue growth and then should be assumed operating profit dollars are maintained. Is it an improvement as those play out and just help us think about maybe the pacing over time.
Andrew Cooper: Okay, sure. Yeah, so it varies product by product but there is kind of a standard when stuff moves it tends to be in the 50 to 20% price savings opportunity for our customers. And so if our savings are greater than that which they typically would be, we share in some of the savings and they share in some of the savings.
Andrew Cooper: So in this particular case, we believe our efficiencies will allow our margins as a percent of sales to go up despite the fact that revenue over time, it'll take a couple years for everything to transfer, will be impacted negatively by that same 20%.
Andrew Cooper: So but all this is going to be offset by the fact that this market is growing rapidly. So you know the market growth may exceed the price decreases so the revenue may still be greater by the time it gets there if that makes sense.
Okay, no, that's helpful. Um, and then.
Speaker Change: Maybe just jumping into the P&L a little bit. You talked about the inefficiencies at AJR that should be kind of temporary here is you staff up. Can you help us think about where those land on the P&L and then kind of the scope and the timing to normalize there. And I asked just with gross margins that were a little bit shy of what we were expecting here. I think that's where that lands, but just a little bit more color. [inaudible]
Ron LaTie: Yeah, good morning, Andrew. It's Ron. Yeah, so AJR so it's a little bit complicated, but we bought this company all of the employees were technically employed by our sister company and they became full time employees of ours on January 1st.
So with that, Kate, new benefit programs, new...
Ron LaTie: Compensation schemes, et cetera, and so it's not uncommon for us to have turnover in the direct labor space.
Ron LaTie: And so as we replace the direct labor which we are successfully doing
Ron LaTie: There tends to be inefficient. So we have to hire people on board them, train them, etc. The productivity is not as great. So that process will we expect to last.
Ron LaTie: through the second quarter. And that shows up in basically one of the components of the cost of sales, i.e. direct labor.
Speaker Change: Okay, great. And then maybe just one last one kind of bigger picture.
Speaker Change: You know with all that's going on in terms of the tariffs in terms of
Speaker Change: reshoring or or not obviously the commitment to the Dominican Republic right now anything change in terms of the way you think about the long term footprint any thoughts on expansions whether it's into your upper Asia and a more meaningful way or.
Speaker Change: You know, just as you think about optimizing this footprint as you grow and scale for the long term, what's maybe evolved over the last few months with the tariff discussions.
Uh, yeah, good question. So we're still...
Speaker Change: I'm pushing ahead aggressively with our expansion plans in the DR at the request of very specific customers and to support very specific programs.
Speaker Change: The DR was protected before by an act that I think the 10% will get resolved in the DR is my personal prediction, but in any event the savings of doing business there for our customers far exceed the 10%. So we are...
Speaker Change: You know, very committed to our expansion plans there. With respect to Europe , it's very market-specific. You know, our recent acquisitions have been in Ireland. Now we have three different factories in Ireland, but...
Speaker Change: You know I think that we're able to service most of the world from where we are. We have been asked by at least one customer to gear up in Asia Pacific to support their needs in those markets.
Speaker Change: So you may see us do some expansion there, potentially even via joint venture. But that's part of the one part of the world that we're not able to service our customers with the highest level of service that we like to. So that, stay tuned on that one. But over the next couple of years you may see us.
Speaker Change: Increase our capacity in that market only to serve that market.
Great. I will stop there. Appreciate the time.
You are welcome, thank you
Speaker Change: And with that, we will conclude our question and answer session. I'd like to turn the conference back over to Jeff Bailey for any closing remarks.
Jeff Bailey: Thank you all for joining the call. We did start up calls at the request of a number of investors who said that they can't be on all calls at the same time for a minimum they could listen in. We had gone a number of years without doing them, so hopefully this is helpful. Feel free to give us any feedback on how we can make the call better in the future, but in the meantime we look forward to speaking to one quarter from now. Thanks very much.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.