UFP Technologies (UFPT) Q3 2026 Earnings Call Transcript

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DATE

Wed, Nov. 4, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Mitchell Rock
• Senior Vice President, Treasurer and Chief Financial Officer - Ronald Lataille

TAKEAWAYS

• Net Sales -- $172.4 million, representing an 11.6% increase compared to $154.6 million in the prior year's third quarter.
• Organic Sales Growth -- 11.1% for the third quarter, driven by accelerating launch programs and improved operating efficiencies.
• MedTech Segment Sales -- 12.5% growth in the quarter, reflecting broad demand across the healthcare portfolio.
• Adjusted EPS -- $2.88, increasing from $2.39 in the same period last year due to higher volume and operational improvements.
• Gross Margin -- 29.4%, rising from 27.7% in the prior year despite continued labor-intensive production at AJR.
• Adjusted Operating Income -- $30.1 million, a 14.5% increase over the $26.3 million reported in the previous year's third quarter.
• Top Five MedTech Customers -- 11.7% collective growth year to date, matching the overall MedTech segment performance.
• SG&A Expenses -- $23.2 million, up $4.1 million year over year due to back-office investments, senior management additions, and variable compensation.
• Cash Flow from Operations -- $38.5 million generated during the third quarter, reflecting the company's capital-light model.
• Capital Expenditures -- $3.9 million in the third quarter, focused on capacity expansion and supporting organic growth.
• Leverage Ratio -- Well under 1 at the end of the quarter, providing significant capacity for future strategic investments.
• Acquisition Activity -- CI Medical, a medical device printing business, was acquired in August 2026 to enhance the company's injection molding and extrusion capabilities.
• YTD Net Sales -- $500.6 million for the nine-month period, up 10.3% from $453.9 million in the prior year.
• Adjusted EBITDA -- $35.4 million for the quarter, an increase of 15.3% from $30.7 million.
• Organic Sales Growth Target -- 6% to 9%, cited by management as the long-term baseline baseline expectations.
• Total Growth Framework -- 12% to 18%, representing the combined target for both organic and inorganic expansion initiatives.
• DAS Medical Outlook -- Double-digit growth anticipated for 2027, supported by additional capacity and long-term customer agreements.
• Robotic Surgery Performance -- Flat to down for the full year 2026, consistent with previous management indications of market conditions.
• Amortization of Intangibles -- $2.5 million for the third quarter, essentially flat compared to the prior year.
• Credit Facility Capacity -- A ratio of 3.25 to 1 for borrowing against EBITDA, identifying the company's current financing limits.
• Noncash Equity Compensation -- $800,000 in the third quarter, partially driven by one-time duplicate CEO costs.
• Adjusted SG&A as Percentage of Sales -- 12.0%, compared to 10.7% in the previous year, reflecting investments ahead of anticipated growth.
• Net Income -- $20.6 million, a 25.8% increase from $16.4 million in the third quarter of 2025.

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RISKS

• Rock stated, "we're behind schedule moving AJR activity to the Dominican Republic," which has delayed the capture of anticipated cost savings and margin improvements.
• Rock noted that "2026 is a flat to down year in robotic surgery," reflecting a period of reduced market activity for that specific surgical submarket.

SUMMARY

UFP Technologies, Inc. (NASDAQ:UFPT) reported a net sales increase of 11.6% for the third quarter, supported by 11.1% organic growth and broad-based demand within its MedTech segment. Management stated that growth was particularly strong in submarkets including patient beds, cardiovascular, infection control, and orthopedics. The company is actively expanding its capabilities through niche acquisitions like CI Medical and capacity investments at DAS Medical to support multiyear agreements. While operational efficiencies improved gross margins to 29.4%, management acknowledged delays in transferring specific high-labor product lines from AJR to facilities in the Dominican Republic. The company ended the quarter with a leverage ratio below 1 and plans to expand its credit facility to support the acquisition of larger businesses.

• CEO Rock stated that several robotic surgical platforms are gaining market adoption after being subscale, which management expects to result in a "meaningful contribution as we move into '27 and beyond."
• Rock noted that while the company is making year-over-year progress at AJR, some program transfers and margin improvements "remain behind plan."
• CFO Lataille indicated that SG&A increases included "approximately $1.9 million in wages and benefits for back-office investments" to accelerate the company's growth strategy.
• Management expects the traditional fourth-quarter softness to continue, particularly as more activity moves to the Dominican Republic where holiday shutdowns are more frequent.
• The company is targeting subscale areas like plastics, extrusion, and adhesives for future organic investment and potential acquisitions to expand its medical device platform.

INDUSTRY GLOSSARY

• AJR: A specialized medical device manufacturer acquired by UFP Technologies, with operations in the U.S. and the Dominican Republic.
• CDMO: Contract Development and Manufacturing Organization, a company that provides comprehensive services from product design to manufacturing for healthcare clients.
• CI Medical: A medical device printing specialist acquired by UFP Technologies in August 2026 that serves the device development market.
• DAS Medical: A contract manufacturer specializing in single-use surgical equipment covers and robotic surgery accessories.
• EBITDA: Earnings before interest, taxes, depreciation, and amortization.
• MedTech: A business segment of UFP Technologies focused on providing engineered solutions and components for the medical device industry.
• TPI: Technical Polymers International, a 2025 acquisition that provides UFP Technologies with medical injection molding capabilities.

Full Conference Call Transcript

Operator: Good day, and welcome to UFP Technologies' Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Ron Lataille, Senior Vice President, Treasurer and Chief Financial Officer. Please go ahead.

Ronald Lataille: Thank you, operator. Good morning, and thank you for joining us on our 2026 third quarter earnings conference call. With me on today's call is our CEO, Mitch Rock. Today, we will make some forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, 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. Our 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.

Please refer to the cautionary statement regarding forward-looking information and the risk factors in our most recent 10-K and 10-Qs, including disclosure of the factors that could cause results to differ materially from those expressed or implied. 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 Mitch.

Mitchell Rock: Thank you, Ron. Good morning, everyone, and thank you for joining us. Our third quarter reflects solid execution across UFP and steady progress on our long-term growth strategy. Third quarter sales were $172.4 million, up 11.6%. Organic growth was 11.1%. Gross margin increased to 29.4%, adjusted operating income grew 14.5%, and adjusted earnings per share increased to $2.88. Year-to-date, sales are up 10.3%, to $500.6 million. MedTech grew 11.7%, and our top 5 MedTech customers collectively also grew 11.7%. What stands out to me is how broad the growth is. MedTech sales were up 12.5%, in the quarter with demand across the portfolio.

One of the real strengths of UFP is that our growth does not depend on any single customer, program or end market. We were proud to be recognized by one of our top 5 customers with a supplier award for creating value through innovation and cost savings. That's exactly what we're aiming for, line up with where our customers are going long term and help them scale while taking costs out. On operations, we are continuing to make progress. We are scaling new programs in the Dominican Republic. Margins are improving in our legacy UFP operations. And at AJR, we have made significant year-over-year progress, both in the U.S. and in the Dominican Republic.

That said, we're behind schedule moving AJR activity to the Dominican Republic. We remain committed to finishing those transfers, scaling up operations and delivering the savings we anticipate. At the same time, we're investing ahead of growth in other parts of the business. At DAS Medical, we are adding capacity ahead of anticipated double-digit growth, along with the people and capabilities to support it. And we are broadening what we can do. In August, we acquired CI Medical, a niche medical device printing business that prints on injection molded and extruded plastic components. CI Medical serves device development and low-volume, high-mix applications. It's a strong fit with our growing plastics business.

We also see an opportunity to expand medical injection molding. Our 2025 investment in TPI gave us a strong initial position in this large and established market. And CI Medical adds the printing capability that goes along with injection molded and extruded components. Together, they expand what we can offer our customers and add value across the UFP platform. Beyond these investments, acquisitions have always been a key part of our growth strategy, and we're positioning UFP to do more. We are making progress on several opportunities. And as UFP has grown, so has the size and range of the businesses we can take on. We remain disciplined on strategic fit and valuation.

In parallel, we're working to expand our credit facility, which gives us room to invest in high-quality businesses that meet our criteria. Between a strong, conservative balance sheet, a bigger team and our decentralized operating model, we believe we can bring on larger businesses and keep investing in organic growth. As we look to 2027, I'm optimistic. We have strong customer relationships, expanding capabilities, new capacity coming online, meaningful organic growth opportunities and an active acquisition pipeline. We also have areas where execution needs to improve, and we remain focused on those. Our strategy remains consistent: grow with our customers, invest in our people and capabilities, improve our operations, make disciplined acquisitions and create long-term value for our shareholders.

None of this happens without our thousands of team members around the world. I want to thank them for their commitment to our customers, to each other and to getting better every day. Thank you. And with that, I'll turn it over to Ron.

Ronald Lataille: Thank you, Mitch. With regard to operating results, as Mitch mentioned, overall sales were up 11.6%, fueled by strength in the patient beds and handling, cardiovascular, infection control and orthopedic submarkets. Organic sales growth for the quarter was strong at 11.1% as our launch programs accelerate, and we continue to improve efficiencies at AJR. Gross profit as a percentage of sales or gross margin increased to 29.4%, from 27.7% last year. This improvement was despite continued margin headwind at AJR as high labor products scheduled to be transferred to the Dominican Republic continues to be contingent on customer qualification. SG&A expenses for our third quarter of 2026 increased by $4.1 million to $23.2 million.

This is largely due to approximately $1.9 million in wages and benefits for back-office investments, increased members of our senior management team designed to accelerate growth and variable compensation as well as approximately $800,000 in noncash equity compensation caused partially by duplicate CEO equity costs. On a sequential basis, SG&A remained relatively similar. Adjusted operating margin for the third quarter was 17.5% and adjusted earnings per diluted share outstanding was $2.88, up significantly from last year. We generated approximately $38.5 million in cash from operations during our third quarter. Capital expenditures were $3.9 million during our third quarter, and we ended with a leverage ratio of well under 1x.

With that, I now turn it back to the operator for questions.

Operator: [Operator Instructions] Our first question comes from the line of Justin Ages with CJS Securities. Justin, will you please proceed with your question?

Justin Ages: Yes. So you mentioned strength in patient beds and a couple of areas. Can you give us a sense on where robotic surgery growth was?

Mitchell Rock: Yes. So as Ron mentioned, we had broad growth in those 4 subsegments, actually double-digit growth. And as we have indicated throughout the year that 2026 is a flat to down year in robotic surgery. So the results were consistent with that.

Justin Ages: That's helpful. And then really strong free cash flow generation. And I know you talked about an active M&A pipeline. Can you kind of let us know about capital allocation priorities where you're looking at acquisitions or maybe instituting buybacks or anything like that?

Ronald Lataille: I would say broadly, we're focused on allocating capital to support organic growth. And as you know, we have a capital-light model. So that pivots our focus to acquisitions. We've been clear that we have an active pipeline, and we're positioning the business to do more.

Operator: Next question comes from the line of Brett Fishbin with KeyBanc.

Brett Fishbin: I wanted to just ask on AJR. I know you guys are progressing in moving some of the product lines offshore, not quite done. So I was just curious if you can give any updates on how it went during the quarter? And then any updated thoughts on the time line to get the final programs moved offshore and whether that could take place this year or if that's more of a 2027 item?

Mitchell Rock: Brett, thanks for the question. What we would say broadly is we're really aligning our resources with our customers' priorities and our customers' priorities over time can shift. I mean this is a growing business with some moving parts that has a complex transfer. The overall business is contributing, so we're making it better. And then we are looking forward to '27 to complete additional transfer activity. So that's how I would think about it.

Brett Fishbin: All right. Perfect. Perfect. And then I know you guys have the longer-term guidance framework, which is 12% to 18% growth, generally 50% organic, which gets to 6% to 9%. You've been above that range in both 2Q and 3Q with double-digit growth. Maybe just any directional comments on what you kind of anticipate for 4Q and into 2027, if 6% to 9% is still kind of the right general baseline range to be thinking about?

Mitchell Rock: Yes. I mean, as you know, we don't give quarterly or annual guidance. I think we're comfortable with the 6% to 9%. Obviously, we've had 2 good quarters. Q4 is traditionally softer -- and as we've moved more activity to the DR, I expect that to continue to be true because we have more holiday shutdowns down there. So I think we're comfortable with the organic growth range and then the overall 12% to 18% with regard to organic and inorganic growth combined.

Brett Fishbin: Perfect. And last question for me. You guys noted in the press release and then again on the call that some of the additional capacity you're adding to DAS Medical could support double-digit growth for that business next year. So just interested in any more color around your early assumptions here and kind of what gives you confidence and visibility into that range?

Mitchell Rock: Yes, great question. So this has been a 5-year journey of investing in this business. In Q1, we signed an extension to support growth. So we have 3 things going on. We have -- we have the growth that we've invested in as far as supporting that long-term agreement. Two, we'll get the full year benefit of the things that we've launched this year, the programs we've launched this year. So that -- and then lastly, more broadly, which is exciting is that there are robotic surgical platforms that are gaining market adoption that have been, what I would say, subscale so far, and we'll see some meaningful contribution as we move into '27 and beyond.

So it's a great story.

Operator: Our next question comes from the line of Andrew Cooper with Raymond James.

Andrew Cooper: Maybe first, just on margins and maybe how it plays into the AJR transition. I mean you've continued to drive margins higher despite the, let's just say, lack of capture of the upside that you expect when those transitions do happen or the final transfers happen. So what's kind of enabled you to continue pushing higher from that perspective on the gross margin side? And how should we expect that to trend in '27 when those transfers do finalize?

Mitchell Rock: Andrew, great question. What I would think broadly about the portfolio is I would think we're focused on revenue growth and operating margin. There are puts and takes on the gross margin. So I think we're excited that we've made progress there. And I think it's -- the story is broad across the portfolio, a combination of volume and the team continue to take costs out. So I think we're comfortable in the -- in our range of 28% to 31%, and I think we're settling in at that 29%. So I think we're comfortable thinking about that way.

Andrew Cooper: Okay. Helpful. And then maybe one on kind of some of the M&A commentary and obviously talking about upsizing some of the capacity there. I think it's interesting you called out TPI as well. Is injection molding an area where you think you can add meaningfully from maybe an organic investment perspective? Is that one of the focus areas when we think about M&A? And just how do we think about the comment in the press release around broadening injection molding capabilities?

Mitchell Rock: Yes. I think if you look at our platform from a capability perspective, we have scale in films, foams, fabrics, and we're subscale in some other interesting areas like plastics or extrusion or adhesives. And it's probably the largest space in kind of single-use CDMOs. So it's -- we have seen a lot of assets in that space, and we continue to be thoughtful about how to add it to the portfolio, both from an organic perspective and from an acquisition perspective.

Andrew Cooper: Okay. Helpful. And then maybe just one big picture one. It feels like there's a lot going on in MedTech world in your customer base overall. Has there been any change in tone or aggressiveness around kind of how they're thinking about development work and new product rollouts and ordering patterns, et cetera, as you think about the last, call it, couple of months of conversations you've had with some of these key accounts?

Mitchell Rock: Nothing really sticks out to me. I mean I think ultimately, this -- the macro trends in the space of trying to develop widgets that deliver a better patient outcome and ultimately drive costs out are consistent. So I think we will continue to map our resources to those customer needs.

Operator: Our next question comes from the line of Luke Fingerson with Lake Street.

Luke Fingerson: Mitch, Ron. First question for you guys. SG&A is up about 20% year-over-year. Should we expect this to keep stepping up into 2027? Or how should we think about that going forward?

Mitchell Rock: Good question. A few points there. There is onetime duplicate CEO costs that will roll off. We do have additional cybersecurity costs that will be permanent. And then we've really invested ahead of growth in terms of the team. And so we suspect that, that will moderate as we grow into those investments by both growing the business organically and adding some businesses to the platform via acquisition.

Luke Fingerson: Got it. And then on capital allocation, you expanded the credit facility and mentioned onboarding larger businesses. How much leverage are you guys willing to run on a larger deal? And then how are you guys thinking about structure when it comes to deal size?

Mitchell Rock: I think we're going to maintain the playbook. We're going to look at continuing to -- our current credit facility is we can borrow at 3.25x EBITDA. And we're just thinking about it in the same way just at a larger scale given the size of the enterprise now.

Operator: That was the last question for today. I now turn the conference back to Mitchell Rock for any closing remarks. Thank you, and over to you, Mitch.

Mitchell Rock: Thank you. Well, thanks, everyone. I just want to thank our customers and our team members. Without those 2 constituents, we wouldn't have a great business. We're super excited about going into 2027, and we appreciate all the support from the investment community. So have a great Thanksgiving and holiday season. We'll talk to you next quarter.

Operator: Thank you, Mitch. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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