Q3 2025 UFP Technologies Inc Earnings Call
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I would now like to turn the conference over to Ellen.
Oh, Gela tight senior Vice President Treasurer, and Chief Financial Officer. Please go ahead.
You operator, good morning, and thank you for joining us on our third quarter 2025 earnings Conference call.
With me on today's call is our CEO and chairman Jeff Bailey.
Ronald J. Lataille: As Jeff mentioned, we have turned the corner in terms of recovery and, in fact, last week, the amount shipped was three times higher than the low point since the problem surfaced. Adjusted operating margin for the Q3 was 17% of sales, within our target range despite the $3 million of extra labor costs. Interest expense was down significantly as we continued to delever our balance sheet, and our effective tax rate of 22.2% for the Q3 was down slightly from a year ago. During the Q3, we generated $35.9 million in cash from operations, paid down approximately $17.5 million in debt, and ended the quarter with a leverage ratio well below 1.5 times. Capital expenditures were $3.4 million. With that, I now turn it back to the Operator for questions.
Today, we will make some forward looking statements within the meaning of the U S. Private Securities Litigation Reform Act of $19 95.
The accuracy of which is subject to risks and uncertainties.
Wherever possible, we will try to identify those forward looking statements by using words, such as believe expect anticipate pursue forecast and similar expressions.
All forward looking statements are based on our estimates and assumptions as of today and should not be relied upon as representing our estimates or views on any subsequent date.
Speaker #1: Good day and welcome to the UFP Technologies third quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star key followed by zero.
Please refer to the cautionary statement regarding forward looking information and the risk factors in our most recent 10-K and subsequent 10-Qs, including disclosure of the factors that could cause results to differ materially from those expressed or implied.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press Star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star then 2. At this time, we'll pause momentarily to assemble our roster. The first question comes from Justin Ajis with CJS Securities. Please go ahead.
During this call we will discuss non-GAAP financial measures, which include organic sales growth adjusted gross margin adjusted operating income.
Adjusted SG&A, adjusted EPS, and EBITDA and adjusted EBITDA.
A reconciliation of GAAP to non-GAAP measures discussed in this call is contained in the associated press release and is available in the Investor Relations section of our website.
I'll now turn the call over to Jeff.
Thank you Ron and thank you to everyone joining the call.
Justin Ajis: Hi. Morning, all.
UFP deliver solid Q3 results despite absorbing abnormally high cost related to the labor inefficiency challenge at our AGR, Illinois facility.
Ronald J. Lataille: Morning.
Justin Ajis: Morning, Justin.
Operator: Can you give us a bit more color on the growth in robotic surgery, that 5%? How much was from your largest customer? Any more details on that?
Overall sales grew six 5% to $154 6 million or.
Jeff Bailly: Yeah. So if you do the math on our largest customer, their growth was actually higher than that. It was closer to 8%. And the reason is we had this sort of one-year phenomenon where if you go back in time, we were producing pouches, this sort of critical part between the robot and the surgical instrument, for the last couple of decades, some of which were sold directly to Intuitive Surgical, some of which were sold to our competitor. When we moved to the Dominican Republic, those sales were no longer to an outsider. They were part of the product that we sold to Intuitive ourselves. So there's this one year where this impact is going to happen. So robotic surgery sales of about 5.1% was a blend of Intuitive Surgical being higher than that, offset by this one-time impact.
Our med Tech business grew seven 3% with impressive growth in interventional and surgical orthopedics and wound care each of which grew greater than 30% offset by a 23% decline in patient services and support which is our AGR Stryker business.
Advanced components of our non medical business declined two 7%.
As we continue to focus the majority of our resources on our Med Tech business.
Hey, Jr. One of six acquisitions, we completed over the last 15 months faced an issue. When we went through the process of verifying the teams eligibility to legally work in the U S T.
<unk> E verify process led to the turnover of greater than 50% of the direct labor workforce.
Training, a large percentage of our workforce reduced our output, resulting in a significant reduction in revenue.
Operator: That's helpful. Thanks. And then on some of the other medtech, the interventional orthopedic that grew, I think you said strong around 30%. Just looking, any indication or any hints of the demand that you're seeing, if we can expect that to continue going forward?
In the third quarter $3 million reduction in gross profit and operating income.
And a 28% reduction in diluted EPS.
We expect much of the revenue from delayed orders will be recaptured in the coming months, but our capacity ramps back up to required levels and we can work down the backlog of open orders.
Jeff Bailly: Yeah. I mean, we were seeing very strong demand in all three of those markets. It was a blend of some of our acquisitions and some of our internal growth, but the only market really across the board that we saw any compression in, related to patient surfaces and support, which is literally our AJR/Stryker. So we see a nice tailwind in most of our markets, offset by this sort of one-time item that we have to work our way through.
We've made significant progress in hiring and training new associates.
July was the low point of our inefficiency when we suffered a significant loss in Illinois.
And have made steady progress since with a smaller loss in August and a return to solid profitability in September.
Although we expect the inefficiency to impact a couple more quarters. The greatest impact is now behind us.
<unk> results in the Dominican Republic should also continue to improve as qualifications are completed and.
Operator: All right. I appreciate you guys taking the questions. Thank you.
Jeff Bailly: Absolutely.
And production of transfer programs ramps up.
Operator: The next question comes from Brett Fishbein with KeyBanc. Please go ahead.
Our first program is in commercial production. The second is in the qualification process.
Justin Ajis: Hey, guys. Good morning, Jeff. Good morning, Ron.
Jeff Bailly: Morning, Ron.
Justin Ajis: So, you guys, morning. Wanted to follow up on some of the commentary about the contract dialogue, and you noted in the press release and then again in the prepared remarks that you're in discussions to extend and expand that contract with your largest customer and mentioned that volumes are expected to increase significantly. So I wanted to follow up and just see if there's any additional color you're able to provide on that. And I was really wondering, does the word expand imply that the contract may include additional SKUs relative to what's been done in the past? And then can we assume that higher volume also means higher overall value for UFP? Thank you.
Anticipated third program transferring in 2026.
All of which was contemplated in our five year exclusive supply agreement with Stryker.
Okay.
On the robotics surgery front revenue was up five 1% in Q3.
We are completing the launch of two significant new programs the.
The combined revenue of those two programs should be greater than 10 million in 2026, and then continue to grow rapidly from there.
We are also in discussions to increase and extend our $500 million contract with our largest customer <unk>.
They've asked us to plan for significantly increasing volumes.
Both companies plan to make multimillion dollar investments towards increasing capacity and efficiency at our lower amount of facilities.
Jeff Bailly: Sure. So yes, we have been requested to revisit the contract. I think the goal is going to be a rolling four-year contract, so there's a couple of years left, maybe a little bit more, and so they're looking to extend it out a couple of years. The key is, from our perspective, they need us to plan for substantially higher volumes. In order to do that, we literally have to get a brand new building. If you recall, we brought on Building 5 this year in our robotic surgery campus. We're going to have to add a sixth building. We're going to have to add new capital, new personnel, et cetera. So we need a commitment from them, and conversely, they need a commitment from us so that they can be assured of continuity of supply.
We are simultaneously working on extending our exclusive supply agreement for our critical raw material and robotic trades.
As a result, we remain very bullish about our long term future of robotic surgery.
Our two recently completed acquisitions unitek and TPI are both performing well ahead of expectations and has been immediately accretive to our earnings.
Organic growth for UFP was essentially flat in Q3 due to the reduction in AGR sales quarter over quarter.
Jeff Bailly: In general, when we do a new contract, it does incorporate all the products, not just the XI. It would roll in all the other ones at the same time. Simultaneous with working on that contract with Intuitive, we're going back and negotiating with our key supplier. So we'll look for our supplier to give similar commitments for volume that we do over the same four-year period. And the volumes that are being contemplated are significantly increased over where we are now, particularly in the out years. We have the capacity already to do, I think, about $9 million drapes, but they're looking for us to plan to do substantially more than that in the out years.
Setting aside acquisitions completed in the prior 15 months <unk> base business grew approximately 5%.
In conclusion, we have a lot of positive momentum at good news to look forward to.
<unk> returned to profitability and improving operating efficiency as new team members complete their training.
The positive impact of the transfer business in the Dominican Republic, launching and then reaching commercial production.
All of which was contemplated in our 5-year, exclusive Supply agreement with Striker.
Two new robotic surgery programs launching and beginning commercial production.
On the robotic surgery, front Revenue was up 5.1% in Q3.
An extension in process for a long term contract with our largest customer with significantly increased volumes contemplated in.
New programs.
And planned multimillion dollars capital investment by our customer.
Justin Ajis: All right. Super helpful. And then maybe I'll just follow up on in the quarter. I think inorganic revenue was, again, higher than we were expecting. And looking at the 12-month run rate, I think it was a little bit above $9 million. So maybe just touch on how the acquired businesses performed versus your expectations and whether the upside relative to, call it the trailing 12-month rate, was more from the new ones, Unipec and TPI, or from the final stub period from some of your deals from last year. Thank you again.
The combined revenue of those 2 Programs should be greater than 10,000 2026 and then continued to grow rapidly from there.
And the positive impact of our recent acquisitions combined with our efforts to find strategic acquisitions that increase our value to customers.
We are also in discussions to increase and extend our $500 million contract with our largest customer.
They've asked us to plan for significantly increasing volumes.
I will now hand, it over to Ron to provide additional details on our financial results.
Thank you Jeff.
Both companies plan to make multi-million dollar Investments towards increasing capacity and efficiency at our Laro Moana facilities.
Im also pleased with our third quarter results as we delivered solid numbers. Despite working through the large nonrecurring labor challenge at a jr.
We are simultaneously working on, extending our exclusive Supply agreement for a critical raw material and robotic drapes.
Before I provide more color on these numbers I'd like to start by providing a brief update on tariffs.
Jeff Bailly: Sure. So to start, both of our two new ones are small, but they're performing fantastically well. They're turning out to be home runs even though they're little, both strategically by bringing us new capabilities and financially. So I would say the impact from the new acquisitions is relatively small, and so the inorganic growth you're more seeing is from the previous ones rolling forward, but we are thrilled with both of our new small acquisitions. And despite the fact that the small ones are not as impactful, that we're able to. I come up with much more pro-shareholder valuations in those than we're seeing in the market for the much larger deals. So we're still happy with the small deals.
As a result. We remain. Very bullish about our long-term future robotic surgery.
As mentioned in our second quarter call, we do not expect to be directly subject to a material amount of tariffs and that was true in our third quarter, we paid approximately $160000 in tariffs to the government of which all was or will be pass through to our customers.
Our 2 recently completed Acquisitions unipec and TPI are both performing. Well, ahead of expectations and have been been immediately accretive to our earnings.
Organic growth for ufp was essentially flat in Q3 due to the reduction in AGR sales quarter of a quarter.
On the supply side, our new estimate of the annual amount of tariffs to be pass through by our suppliers is approximately $6 million down from the $9 million estimate in Q2.
Setting aside Acquisitions completed in the prior 15 months. Uf's base, business grew approximately 5%.
in conclusion, we have a lot of positive momentum and good news to look forward to
Like the direct tariffs, we anticipate passing through the raw material increases to our customers some of which have already occurred.
Hey Juniors, return to profitability and improving operating efficiency as new team members, complete their training.
Justin Ajis: All right. Thanks so much again.
Jeff Bailly: You're very welcome.
Switching back to operating results as Jeff mentioned organic sales were essentially flat as the HR business flipped from inorganic to organic for all of Q3.
Operator: The next question comes from Max Mitchellis with Lake Street Capital Markets. Please go ahead.
Positive impact of the transfer business and the Dominican Republic launching. And then, reaching commercial production,
Two new robotic surgery programs are launching and beginning commercial production.
Max Mitchellis: Hey, guys. Thanks for taking my question. I want to go back to the two programs that are expected to ramp in 2026. I think you mentioned a $10 million number in revenue contribution for next year, but sort of help me out. What do those two programs look like in terms of size, maybe once that's fully scaled? Let's call them 2027 or 2028?
Due to the labor problem AA, Jr. More than $8 million in incremental orders were unable to be fulfilled during the quarter.
An extension process for our long-term contract with our largest customer with significantly increased volumes contemplated.
And planned multi-million-dollar capital investment by our customer.
Had we been able to meet the production demand organic sales would have grown approximately 6%.
And the positive impact of our recent acquisitions combined, with our efforts to find strategic Acquisitions that increase our value to customers.
In light of these unfilled orders backlog going into Q4 is approximately $16 million much of which we expect to fulfill by early 2026.
I will now hand it over to Ron to provide additional details on our financial results.
Jeff Bailly: Yeah. So our estimate of $10 million, in my feeling, is very conservative. I think one of those programs alone could be $10 million in 2026, and the other about half that size. We're always very conservative in year one because we don't know if there's going to be delays in launching. But they're both substantial, greater than $5 million programs at rate, and both growing rapidly. So in the out years, one of them could be $20 million plus within a few years, and the other one harder to say, but they're both rapidly growing programs that we're super excited about. So I would take the $10 million as conservative and then look for 2027 to be a wonderful uptick from there.
Thank you, Jeff.
Gross profit as a percentage of sales or gross margin decreased to 27, 7% largely due to the $3 million in extra labor costs incurred to ajr, which are all reflected in cost of sales.
I am also pleased with our third quarter results as we delivered solid numbers, despite working through the large non-recurring, labor challenge at AJR
Before I provide more color on these numbers, I'd like to start by providing a brief update on tariffs.
Absent the $3 million in additional labor costs gross margins would have increased to 29, 6%.
As Jeff mentioned, we have turned the corner in terms of recovery and in fact last week. The amount shipped were three times higher than the low point since the problem surfaced.
As mentioned in our second quarter call, we do not expect to be directly subject to a material amount of tariffs, and that was true. In our third quarter, we paid approximately $160,000 in tariffs to the government, of which all was or will be passed through to our customers.
Max Mitchellis: Awesome. And then, just with the recent discussions and the extension of your contract with Intuitive, I know you talked about sort of an investment needed in the Building 6. I mean, how much are you guys in terms of investment on the hook for? Is this all on their side, I guess?
Adjusted operating margin for the third quarter was 17% of sales within our target range. Despite the $3 million of extra labor costs.
Interest expense was down significantly as we continued to delever, our balance sheet and our effective tax rate of 22, 2% for the third quarter was down slightly from a year ago.
On the supply side, our new estimate of the annual amount of tariffs to be passed through by our suppliers, is approximately 6 million down from the 9 million estimate in Q2, like the direct tariffs, we anticipate passing through the raw material increases to our customers.
Some of which have already occurred.
Jeff Bailly: Oh, it's being discussed and negotiated. They have already committed to a multi-million-dollar investment. That's related to improving efficiency. Some of their internal initiatives came up with some efficiencies that are helpful to us, and they share all these things with us. They're in the process of a multi-million-dollar investment right now. Typically, their shared capital, at a minimum, would be on the hook for investing in the leases, et cetera. I think the inclination of late is more that it would be Intuitive's capital than ours, but it has not been decided. It could be 100% either one, or it could be split down the middle. In the past, we've done both. But I would expect some multi-million-dollar sharing of capital in the end.
During the third quarter, we generated $35 9 million in cash from operations paid down approximately $17 5 million in debt and ended the quarter with a leverage ratio well below one five times.
Switching back to operating results. As Jeff mentioned, organic sales were essentially flat as the AJR business flipped from inorganic to organic for all of Q3.
Capital expenditures with $3 4 million.
Due to the labor problem at AJR more than 8 million. In incremental orders were unable to be fulfilled during the quarter.
With that I'll now turn it back to the operator for questions.
Had we been able to meet the production demand organic sales would have grown approximately 6%?
Thank you.
We will now begin the question and answer session.
To ask a question the human Press Star then one on your Touchtone phone.
If you are using a speaker phone please pick up your handset before pressing the keys.
In light of these unfilled orders backlog going into Q4 is approximately 16 million much of which we expect to fulfill by early 2026.
Max Mitchellis: Awesome. All right. Thanks, guys.
Jeff Bailly: You're very welcome.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Operator: The next question comes from Andrew Cooper with Raymond James. Please go ahead.
At this time, we will pause momentarily to assemble and lifestyle.
Gross profit as a percentage of sales or gross margin decreased to 27.7% largely due to the 3 million in extra labor. Costs incurred to AJR which are all reflected in cost of sales.
[Analyst] (Raymond James): Hey, guys. This is Noah on for Andrew. Just wanted to get a sense for the AJR pacing. You called out $8 million of incremental orders this quarter, $16 million in backlog. I think you said earlier to a question, you haven't seen any demand impact. So how should we think about you working down that backlog over the next few quarters, and should we expect AJR to be able to return the growth as you see those efficiencies? And so what should we expect from kind of that non-Intuitive business that's kind of major? So just get a sense there.
The first question comes from Justin Ages.
Absent, the 3 million and additional labor costs gross. Margins would have increased to 29.6%.
<unk> CJS Securities. Please go ahead.
Hi, good morning, all.
Good morning.
Morning, gentlemen.
Can you give us a bit more color on the growth in robotic surgery day at 5%.
As Jeff mentioned, we have turned the corner in terms of recovery. And in fact, last week, the amount shipped with 3 times higher than the low Point since the problem surfaced
How much was from your largest customer any more details on that.
adjusted operating margin for the third quarter was 17% of sales within our target range. Despite the 3 million of extra labor costs.
Yes, so if you do the math on.
Jeff Bailly: Sure. So we are working hard to reduce that backlog. Unfortunately, or fortunately, their business itself is growing. So the demand internally is growing, and the backlog, as you say, is about $15 or $16 million. Our goal is to work it down as fast as possible. I think that they'd like us to have it done by the end of the year. I think that's going to be a tall order. We're way more interested in output than efficiency right now. So we're throwing a lot of resources at getting their backlog down. As we go into next year, we're still expecting the business to continue to grow. So all on its own, it'll grow at a double-digit rate, plus we'll be working down the backlog. So we have quite a bit of tailwind going into next year.
Our largest customer there growth was actually higher than that it was closer to 8% and.
Interest expense was down significantly as we continue to de-lever our balance sheet and our effective tax rate of 22.2%. For the third quarter was down slightly from a year ago.
And the reason is we had this sort of a one year phenomenon or if you go back in time, we were producing pouches as sort of a critical part between the robot and the surgical instrument for the last couple of decades, some of which were sold directly to intuitive surgical some of which were sold to our competitor when we move to the Dominican Republic.
During the third quarter, we generated 35.9 million in cash from operations, pay down, approximately 17.5, million in debt and ended the quarter with a leverage ratio. Well, below 1.5 times,
Those sales were no longer to an outsider to they were part of the product that we sold to intuitive ourselves.
With that, I now turn it back to the operator for questions.
So this is one year, where this impact is going to happen. So robotic surgery sales of about five 1%.
Thank you.
We will now begin the question and answer session.
Jeff Bailly: So our goal, like I said, is to get our customers' orders fulfilled as fast as possible with less focus on efficiency. Next year, we'll turn our attention to doing things much more efficiently.
Was a blend of intuitive surgical being higher than that offset by this onetime impact.
to ask a question, you may press star then 1 on your touchtone phone,
Okay.
That's helpful. Thanks.
If you're using a speaker phone, please pick up your handset before pressing the keys.
And then.
On the some of the other med tech the interventional and therapeutic that grew I think it's strong.
[Analyst] (Raymond James): Okay. Awesome. And then just one quick follow-up. In kind of following up to that point on efficiency, we've already had that labor headwind sort of trotting in Q3 and getting better from here. So now that you're sort of working through all of that, how should we expect gross margins to pace going forward? I know you're lapping the headwinds next year, but just kind of curious, how should we expect margins to trend as you pull out those efficiencies in light of your LRP ranges?
if at any time your question has been addressed and you would like to withdraw your question, please press star then 2
Around 30% just looking.
At this time, we will pause momentarily to assemble our Austra.
Any indication or any hints of.
The demand that Youre seeing if we can expect that to continue going forward.
Yes, I mean, we are seeing very strong demand in all three of those markets. It was a blend of some of our acquisitions and some of our internal growth, but the only market really across the board that we saw any compression and related to patient surfaces and support which is literally our AGR slash Stryker. So we see like a nice tailwind.
The first question comes from Justin ages with CG CJs Securities, please go ahead.
I'm running off.
Um,
Ronald J. Lataille: This is Ron, Noah. So yeah, we would anticipate gross margins gradually improving. As Jeff mentioned in his script, the inefficiencies are not going to be 100% eliminated. They'll linger into Q4 and potentially even into Q1 of next year as we focus on output rather than efficiency. So I think they will gradually improve from where we were in Q3, but I don't think they'll be back to where sort of adjusted gross margins would have been had we had no inefficiency in Q3.
And in most of our markets offset by this sort of one time item that we have to work our way through.
can you give us, uh, a bit more Colour on the growth in robotic surgery, that, that 5%, um, you know, how much was from your, your largest customer any more details on that.
Alright, I appreciate you guys, taking my questions. Thank you.
Absolutely.
The next question comes from Brett Fishman with Keybanc. Please go ahead.
Hey, guys. Good morning, Jeff Good morning, Ron.
Thank you guys.
Morning.
Wanted to follow up on some of the commentary about the contract dialed.
Dialogue.
In the press release, and then again in the prepared remarks that you are in discussions to extend and expand that contract with your largest customer Aman mentioned that volumes are expected to increase significantly. So I wanted to follow up and just see if there's any additional color you're able to provide on that and I was really wondering does the word expand imply that the cons.
[Analyst] (Raymond James): Okay. Awesome. Thank you.
Operator: Thank you. The next question comes from Ragnet Ted with 8FR. Please go ahead.
Yeah, so if if you do the math on um our largest customer, their growth was actually higher than that it was closer to 8%. And the reason is we had this sort of 1 year phenomenon or if you go back in time, we were producing pouches this sort of critical part between the robot and the surgical instrument for the last couple decades. Some of which were sold directly to intuitive surgical, some of which were sold to our competitor when we moved to Dominican Republic.
Max Mitchellis: Hey, guys. Thanks for taking the question. I just want to drill on the $8 million of orders that weren't filled in the quarter. I think you mentioned it, Ron, in your prepared remarks, but just so I'm clear, that closed July of 2024, so it is considered organic this quarter, year over year?
Those sales were no longer to an outsider. They were part of the product that we sold to intuitive ourselves. Um, so there's there's this 1 year where
Fact may include additional skus relative to what's been done in the past and then can we assume that higher volume also means higher overall value for your ft. Thank you.
Sure.
Ronald J. Lataille: It is.
So yes, we have been requested to revisit the contract I think the goal is going to be a rolling four year contracts. So there's a couple of years left maybe a little bit more and so they are looking to extend it out a couple of years. The key is from our perspective, they need us to plan for substantially higher volumes in order to do that and we literally have to get a brand new building.
Max Mitchellis: In a perfect world where you had delivered those, we should actually think about medical being more like $150 million, roughly 13% to 14% growth year over year?
Ronald J. Lataille: Yeah. I think that's right.
Max Mitchellis: Heavy delivery.
This impact is going to happen. So robotic surgery sales of about 5.1%. You know, was a blend of intuitive surgical being higher than that offset, by this 1 time impact, that's helpful. Thanks. Um, and then on the, you know, some of the other Medtech, the Interventional Orthopedic That Grew. I think you said strong, uh, around 30% just looking, you know, in any indication or any hints of of
Ronald J. Lataille: To be clear, if we were able to deliver on the $8 million of backlog, organic growth would have been approximately 6%. Factoring in the inefficiency, the $3 million, if we did not have that $3 million, adjusted gross margins would have been approximately 29.7%. EPS would have been approximately $2.67, and adjusted EBITDA would have been approximately $33.7 million.
If you recall, we brought on building five this year and our robotic surgery campus, we're going to have to add a sixth building, we're going to have to add new capital new personnel et cetera. So we need a commitment from them and Conversely, they need a commitment from us so that they can be assured of continuity of supply in general when we do a new contracted does incorporate all of the products.
The demand that you're seeing. If we can expect that to continue going forward,
Not just the size of what it would roll in all the other ones at the same time.
Simultaneous with working on that contract with intuitive, we're going back and negotiating with our key supplier. So we will look for our supplier to give.
Yeah, I mean, we're seeing very strong Demand, on all 3 of those markets. It was a blend of of some of our Acquisitions and some of our internal growth but the only Market really across the board that we saw any compression in related to Patient surfaces and support which is literally our ADR Striker. Um, so we see like a nice Tailwind in. In most of our markets offset by this sort of 1-time item that we have to work our way through.
Max Mitchellis: Got it. Got it. And thinking about that EBITDA, I get that there was the $3 million of AJR cost, but I got to imagine there's costs associated with the ramp-up in the qualification programs that you guys were getting started in the quarter?
All right, I appreciate that. You guys taking the questions. Thank you.
Similar commitments for volume that we do over the same four year period and.
And the volumes that are being contemplated or significantly increased over where we are now, particularly in the out years.
The next question comes from Brett Fishburne with Key Bank. Please go ahead.
Jeff Bailly: Yeah, 100%. Every program launches with losses and then transitions to break-even and then to profitability. The programs launching in the DR are still in the losses phase, and the programs launching in La Romana will be in the losses phase for the first quarter or two.
Hey guys, good morning, Jeff. Good morning Ron. Um morning bro. You guys.
We have the capacity already to do I think about $9 million drapes, but theyre looking for us to plan to do submit substantially more than that in the out years.
Okay.
Alright Super helpful. And then maybe I'll just follow up on in the quarter I think inorganic revenue was again higher than we were expecting and looking at the 12 month run rate I think it was a little bit above $9 million. So maybe just touch on how the acquired businesses performed versus your expectations and whether the upside.
Max Mitchellis: I mean, how would you size that for us, or how should we think about that? It's just, I'm trying to obviously, you punched above your weight in a quarter with a lot going on. And I'm trying to kind of dig at what would be a good, how should we kind of view, I don't know, lack of a better term, run rate EBITDA? And I get it, $30.7 million of EBITDA, add $3 million. And then you have these one-time costs. How big are those, roughly?
<unk> call. It the trailing 12 month rate with more from the new one unit pack and TPI or from the final stop period from some of your deals from last year. Thank you again.
Morning, um, wanted to follow up on some of the commentary about the contract, um, you know, dialogue and you know, you noted in the press release and then again, in the prepared remarks that you're in discussions to extend and expand that contract with your largest customer. Um and mentioned that volumes are expected to increase significantly. So I wanted to follow up and just see if there's any additional call that you're able to provide on that. And I was really wondering, you know, does the word expand imply. That the contract may include additional skus relative to what's been done in the past and then can we assume that, you know, higher volume. Also means higher overall value for UFT. Thank you.
Sure.
So to start both of our two new ones are small, but they are performing fantastically well they are turning out to be homeruns, even though theyre little both strategically by bringing us new capabilities and financially.
Jeff Bailly: I mean, for us, it's the cost of doing business because we're constantly launching programs, so we usually don't quantify them.
Max Mitchellis: Got it.
Jeff Bailly: It's per program, it's not millions of dollars, but it's hundreds of thousands of dollars per program. But again, we're used to this. We factor it into our planning. So we're constantly launching programs and constantly absorbing modest losses. But those several hundred thousand dollars of losses will turn into profits over the next couple of quarters. So it'll be meaningful, but it's just the cost of doing business for us.
So I would say the impact from the new acquisitions is relatively small and so the inorganic growth youre seeing is from the previous ones rolling forward, but we're thrilled with both of our new small acquisitions and despite the fact that the small ones are not as impactful that we're able to I come up with much more pro shareholder valuations in those than we are.
Being in the market for the much larger deals. So we're still happy with the small deals.
Max Mitchellis: I know you guys talked about obviously wanting to serve the customer, getting that product out the door, not worrying so much about efficiency, but is it fair to assume the incremental margin on that additional $8 million probably would have been something a little greater than 20% or in that 20% to 25% range?
Alright, thanks, so much again.
Youre very welcome.
Yeah.
The next question comes from Max Mitchell Dennis.
At Lake Street Capital markets. Please go ahead.
Hey, guys. Thanks for taking my question wanted to go tour go back to the two programs that are expected to ramp in 2026, I think you mentioned the 10 million number in revenue contribution for next year, but sort of.
Jeff Bailly: We would probably think of it more as contribution because all the fixed costs are kind of there, the rent, the engineers, and everything. So the contribution's considerably higher than that when you subtract direct costs.
Help me, what does where do those two programs look like and in terms of size, maybe once that's fully scaled let's call it 2027% 2028.
Ronald J. Lataille: Yeah. Ted, it's probably in the 30% to 35% range.
For volume that we do over the same 4 year period and the volumes that are being contemplated are significantly increased over where we are now uh, particularly in the out years. Um, we have the capacity already to do, I think about 9 million drapes, but they're looking for us to plan to do semi substantially more than that now, ears,
Max Mitchellis: So I mean, we should be thinking about it in a perfect quarter where none of this stuff happened. You're actually kind of run rating more like 36.37 million of EBITDA.
Yes, so our estimate of $10 million and my feeling is very conservative I think one of those programs alone could be $10 million in 2026, and the other about half that size, we're always very conservative in year, one because we don't know if there's going to be.
Ronald J. Lataille: I think that's right.
Max Mitchellis: Thanks. We'll get back in the queue.
Plays in launching.
But they are both substantial greater than $5 million programs at rate in both growing rapidly.
Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Jeff Bailly for any closing remarks.
So in the out years.
Sure.
One of them could be $20 million plus within a few years.
All right, super helpful. And then um, maybe I'll just follow up on, you know, in the quarter I think inorganic Revenue was again higher than we were expecting and you know, looking at the 12-month run rate, I think it was a little bit above 9 million so maybe just touch on how the acquired businesses performed versus your expectations. And whether the upside relative to call out the trailing 12-month rate was more from the nuance unipac and TPI or from you know the final stub period from some of your deals from last year. Thank you again.
Jeff Bailly: Yeah. Thank you all for your participation and interest in UFP. As you can tell, we are super bullish about our future, particularly on the long-term front for robotic surgery. We will work our way through this one-time AJR issue. We have, for the first time in the history of our company, actually filed a claim after doing 20-something deals for a miss on a rep and warranty. So maybe or maybe not, we'll get reimbursed for our expenses. But one way or another, they're one-time in nature. We'll move through them. We're working through them quickly. So we appreciate your patience in the process, and we appreciate your interest in the company.
Sure.
And the other one harder to say, but they are both rapidly growing programs that we're super excited about so I would take the $10 million is conservative and then look for 2027 to be a wonderful uptick from there.
Awesome and then just with the recent discussions and the extension of your contracts and intuitive I know you talked about sort of an investment needed in the building six I mean, how much are you guys in terms of investment on the hook for us all.
On their side I guess.
Oh, it's being discussed and negotiated.
Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
They have already committed to a multimillion dollar investment.
So to start both of our, our 2 new ones are small, but they're, they're performing fantastically well. Um, they're turning out to be home runs even though they're little both strategically by bringing us new capabilities in financially. Um, so I would say, the impact from the new acquisitions is relatively small and so the inorganic growth, you're you're more seeing is from the previous ones, rolling forward. Uh, but we are a thrilled with both of our new small Acquisitions. And, you know, despite the fact that the small ones are not as impactful that we're able to, I come up with much more Pro shareholder valuations in those than, than we're seeing in the market for the much larger.
This is related to improving efficiency some of their internal initiatives came up with some efficiencies that are helpful to us to make sure all these things with us so they.
Deals. So we're still happy with the small deals.
Max Mitchellis: Thank you, everyone.
All right, thanks so much again.
You're very welcome.
We're in the process of a multimillion dollar investment right now typically this shared capital at a minimum would be on the hook for investing in the leases et cetera, I think the inclination of late is more than it would be intuitive capital than ours, but it has not been decided it could be 100% either one or it could be split down the middle in the past we've done both.
Question comes from Max michelis at Lake Street Capital Market, please go ahead.
But I would expect some multibillion sharing of capital in the end.
Awesome all right. Thanks, guys.
Very welcome.
Hey guys, thanks for taking my question. Uh want to go toward, go back to the 2 programs that are expected to ramp in 2026. I think you mentioned a 10 million number in Revenue contribution for next year, but sort of help me out. What does, what do those 2 Programs look like in in terms of size, maybe? Once that's fully scaled, let's call them 2027 or 2028.
The next question.
<unk> comes from coupon too with Raymond James. Please go ahead.
Hey, guys. This is on for Andrew.
Just wanted to get a sense for the a J.
Our pacing you called out $8 million of incremental or is this quarter $16 million in backlog.
I think you said earlier to a question you haven't seen any demand impact. So how should we think about you working down that backlog over the next few quarters and should we expect a jr. Being able to return to growth as you see those efficiencies and so what should we expect in front of that non.
Yeah. So our our estimate of 10 million in my feeling is very conservative, I think, 1 of those programs alone could be 10 million in 2026 and the other about half that size. We're always very conservative in year 1 because we don't know if there's going to be you know delays in launching. Um but they're both substantial greater than 5 million dollar programs that rate in both growing rapidly. Um, so in the out years, you know,
Intuitive business Thats kind of major so just get a sense there.
1 of them could be 20 million plus within a few years. Um and the other 1 harder to say but they're they're both rapidly growing programs that we're super excited about. So I I would take the 10 million as conservative and then look for 2027 to be a wonderful uptick from there.
Sure.
So we are working hard.
Reduce that backlog, unfortunately, or fortunately there business itself is growing so the demand internally is growing in the backlog.
As you say, it's about 15 or $16 million. Our goal is to work it down as fast as possible I think they're like us to have it done by the end of the year I think thats going to be a tall order.
Awesome. And then, just with the, the recent discussions and the extension of your contract is intuitive. I, I know, you talked about sort of an investment needed in the building sick. I mean, how much are you guys in terms of investment on the hook for is this all, um, on their side, I guess?
We're way more interested in output and efficiency right now so we're throwing a lot of resources at getting their backlog down as we go into next year, we're still expecting the business to continue to grow so all of its own it'll grow at a double digit rate plus we'll be working down the backlog. So we have quite a bit of tailwind going into next year.
So our goal like I said is to get our customers orders fulfilled as fast as possible with less focus on efficiency next year, we will turn our attention to doing things much more efficiently.
Okay Awesome and then just one quick follow up.
Oh, it's being discussed in negotiated. Um, they have already committed to a multi-million dollar investment um, that's related to improving efficiency. Some of their internal initiatives came up with some efficiencies that that are helpful to us and they share all these things with us. So, you know, they're in the process of a multi-million dollar investment right now. Typically the shared Capital at a minimum would be on the hook for investing in in the the leases Etc. Um, I think the inclination of late is more that it would be intuitive's Capital than ours, but it has not been decided. It could be 100% either 1 or it could be split down the middle. Uh, in the past we've done both. Um, but I would expect some s*** multi-million dollar sharing of capital in the end.
Kind of following up to that point on efficiency, we've already had that labor headwind sort of trough.
Awesome. All right. Thanks guys.
You were very welcome.
In <unk> and getting better from here. So now that you're sort of working now that you are working through all of that how should we expect gross margins to pace going forward. I know you are lapping them like the headwind next year, but just kind of curious how should we expect margins to trend as you pull out those efficiencies in light of your <unk>.
The next question comes from Koopa, Andrew with Raymond James, please go ahead.
It ranges.
This is Ron so, yes, we would anticipate gross margins gradually improving as Jeff mentioned in his script.
Inefficiencies are not going to be 100% eliminated the lingering into Q4 and potentially even into Q1 of next year as we focus on output rather than efficiency. So I think they will gradually improve from where we were in Q3, but I don't think they'll be back to where sort of adjusted <unk>.
Hey guys. This is uh, no on for Andrew. Um just wanted to get a a sense for the AJR pacing. You know, you called out 8 million of incremental orders this quarter 16 million in backlog. Um I think you said earlier to a question, you haven't seen any demand impact. So how should we think about you working down that backlog over the next few quarters? And should we expect AJR be able to return the growth as you see those efficiencies. And so what should we expect in front of that non uh, intuitive business? That's kind of major. So just get a sense there.
Sure. So we are working hard to to
Most margins would've been and we had no inefficiency in Q3.
Okay awesome. Thank you.
Thank you. The next question comes from Ted Grace.
Um, as you say is about a 15 or 16 million, our goal is to work it down as fast as possible. I think that they'd like us to have it done by the end of the year, I think that's going to be a tall order. Um we're way more interested in output than efficiency right now.
Fr. Please go ahead.
Hey, guys. Thanks for taking the question.
I just wanted to drill in on the $8 million of orders werent filled in the quarter.
I think you mentioned it Ron in your prepared remarks, but just so I'm clear that that closed July 24. So it is considered organic.
This quarter year over year.
It is.
And so.
So we are, we're throwing a lot of resources at getting their backlog down, as we go into next year. We're still expecting the business to continue to grow. So all on its own, it'll grow at, you know, a double digit rate plus. We'll be working down the backlog, so we have quite a bit of Tailwind going into next year. Um, so our goal, like I said, is to get our our customers orders fulfilled as fast as possible with less focus on efficiency. Next year, we'll turn our attention to doing things much more efficiently.
In a perfect World you had delivered those we should actually think about medical being more like a $150 million roughly 13%, 14% growth year over year.
Yes, I think thats right.
<unk> delivered.
To be clear, if we were able to deliver on the 8 million of backlog.
Organic growth would have been approximately 6% factoring in the inefficiencies of $3 million. If we were if we did not have that $3 million gross margins would've been adjusted gross margins would've been approximately 29, 7% EPS would've been approximately $2.
Okay, awesome. And then just 1 quick follow-up. Uh, in this, it kind of following up to that uh, point on efficiency. You know, we've already had that labor headwind sort of troughing, uh, in 3Q and getting better from here. So now that you're sort of working, now that you're working through all of that, how should we expect gross margins, uh, to Pace going forward? Um, I know you're laughing, um, like the headwinds next year, but, uh, just kind of curious. How should we expect margins to Trend? Um, as you pull out those efficiencies, uh, in light of your lrp ranges,
67 <unk>.
And adjusted EBITDA would've been approximately $33 7 million.
Got it got it.
Thinking about that EBITDA against that there was $3 million of Edr cost but.
I got to imagine there's costs associated with the ramp up and qualification programs that you guys were getting started in the quarter.
Yes, 100% every program launches with losses, and then transitions to breakeven and profitability. So.
Uh this is Ron uh Noah. So yeah we would anticipate gross margins. Gradually improving as Jeff mentioned in his script, the inefficiencies are not going to be 100% eliminated they'll linger into Q4 and potentially even into q1 of next year as we focus on output rather than efficiency. So I think they will gradually improve from where we were in Q3, but I don't think they'll be back to where sort of adjusted gross margins would have been had, we had no inefficiency in Q3.
Programs launching the Dr are still in the losses phase and the programs launching in La Romana will be in the loss of space for the first quarter or two.
Okay, awesome. Thank you.
I mean, how would you can you size that for us or.
Thank you. The next question comes from, wagnet. Ted with 8fr, please go ahead.
How should we think about that is just I'm trying to obviously you guys.
Hey guys, thanks for taking the uh, question.
Above your way in a quarter with a lot going on.
And I'm trying to kind of dig it what would be a good.
How should we kind of view and a lack of a better term run rate.
EBITDA.
Again at $30 7 million EBITDA add three.
Uh I just want to join on the 8 million of orders that weren't filled in the quarter and I just I think you mentioned it Ron and you're prepared remarks but just just so I'm clear that that closed July of 24. So it is considered organic this this quarter year-over-year.
Is.
and, and so,
And then you have these one time costs, how big are those roughly.
I mean for us it's the cost of doing business, because we're constantly launching programs. So we usually don't quantify them.
You know, in the, in the perfect world where you had delivered those, we should actually think about medical being more, like 150 million, roughly 13 14% growth year-over-year.
Got it.
Per program its not millions of dollars, but it's hundreds of thousands of dollars per program.
But again, we're used to this we factored into our planning.
That's right. To be delivered to be clear if we were able to deliver on the 8 million of backlog.
So we're constantly launching programs and constantly absorbing modest losses, but those those several hundred thousand dollars of losses will turn into profits over the next couple of quarters. So it will be meaningful but it is just the cost of doing business for us.
And I know you guys talked about.
Obviously wanting to serve the customer getting that product out the door not worrying so much about efficiency, but.
Um, organic growth would have been approximately 6% factoring in the the inefficiency, the 3 million dollars. If we were, if we did not have the million dollars, gross margins would have been adjusted gross. Margins would have been approximately 29.7%. EPS would have been approximately $2.67 and adjusted. EBA would have been approximately 33.7 million?
Is it fair to assume the incremental margin on that additional 8 million.
<unk> would have been something a little greater than 20% are in that $20 to 25 range.
Got it and thinking about that, you that I get that there was the, you know, 3 million of ADR costs. But
We would probably think of it more as contribution because all the fixed costs are kind of there the rent.
I got to imagine, there's costs associated with the ramp up in the qualification programs that you guys were getting started in in the quarter.
Engineers and everything so the contribution is considerably higher than that.
We subtract direct costs.
Yes, Kevin it's probably in the in the 30% to 35% range.
So I mean, we should be thinking about it in a perfect quarter, where none of this stuff happening you're actually kind of run rating more like a 36 $37 million of EBITDA.
Yeah, 100% every program, launches with losses and then transitions to break even and then to profitability. So, uh, the programs launching the Dr, are still in the losses phase and the programs launching in La Romana will be in the losses phase for the first quarter or 2.
I mean, how would you can you size that for us, or
I think thats right.
How should we think about that? It's just, you know I'm trying to obviously you guys, you punched.
Thanks.
I'll get back in the queue.
Above your waist in a quarter with a lot going on.
Thank you.
And I'm trying to kind of dig at what would be a good.
Concludes our question and answer session.
I would like to turn the conference back over to Jeff Bailey for any closing remarks.
You know, how should we kind of view? I don't know. Lack of a better term, run rate, evida and I'm, you know, I get it. 30.7 of even to add 3
Yes. Thank you all for your participation and interest in <unk> as you can tell we are super bullish about our future, particularly on the long term.
Um and then you have these 1 time costs. How big are those roughly
For robotic surgery, we will work our way through this onetime AGR issue, we have for the first time in the history of our company actually filed a claim after doing twentysomething deals.
I mean, for us it's the cost of doing business because we're constantly launching programs, so we usually don't quantify them. Um, got it, you know, it's it. It's
For Misunder Rep, and warranty, so maybe or maybe not will get reimbursed for our expenses, but one way or another they're onetime in nature, we will move through them, we're working through them quickly. So.
So we appreciate your patients and the process and we appreciate your interest in the company.
Thank you the conference has now concluded.
Thank you for attending today's presentation you may now disconnect.
Her program. It's not millions of dollars, but it's hundreds of thousands of dollars per program. Um, but again, we're used to this. We factor it into our planning. Um, so we're constantly watching programs and constantly absorbing, you know, modest losses. But those, you know, several hundred thousand dollars of losses will turn into profits over the next couple of quarters. So it'll be meaningful, but it's just the cost of doing business for us.
Thank you everyone.
Talked about uh, you know obviously wanting to serve the customer getting that product out the door. Not worrying so much about efficiency, but is it fair to assume the incremental margin on that additional 8 million? You know, probably would have been something a little greater than 20% or in that 20 to 25 range.
We would probably think of it more as contribution because all the fixed costs are are kind of there, you know, the rent the, the engineers and everything. So the contributions considerably higher than that, you know, when you you subtract direct costs.
Yeah. Ted it's probably in the in the 30-, 35% range. So I mean we should be thinking about it in a perfect quarter where none of this stuff happened, you're actually kind of run rating, more like a 36.
37 million of IBA.
I think, that's right.
Thanks, get back in the queue.
Thank you. This concludes our question and answer session.
Okay.
I would like to turn the conference back over to Jeff Bailey for any closing remarks.
Yeah, thank you all for your participation and interest in ufp as you can tell. We are super bullish about our future, particularly on the long term. Uh, front for robotic surgery. We will work our way through this. 1 time, AJR issue. We have for the first time in the history of our company, actually filed, a claim after doing 20, something deals, um, for, uh, Miss on a rep and warranty. So maybe, or maybe not, we'll get re
Reimburse for our expenses, but one way or another, their one time in nature will move through them. We're working through them quickly. Um, so we appreciate your patience in the process, and we appreciate your interest in the company.
Thank you. The conference has now concluded.
Thank you for attending today's presentation. You may now disconnect
Thank you.