UFP TECHNOLOGIES INC

Previous wording

Investors are cautioned that such forward-looking statements involve risks and uncertainties that could adversely affect the Company’s business and prospects, and otherwise cause actual results to differ materially from those anticipated by such forward-looking statements, or otherwise, including without limitation: financial condition and results of operations, including risks relating to substantially decreased demand for the Company’s products; risks relating to the potential closure of any of the Company’s facilities or the unavailability of key personnel or other employees; risks that the Company’s inventory, cash reserves, liquidity or capital resources may be insufficient; risks relating to delayed payments by our customers and the potential for reduced or canceled orders; risks related to customer concentration; risks related to global conflict or civil unrest to the efficacy of our manufacturing process; risks associated with the identification of suitable acquisition candidates and the successful, efficient execution of acquisition transactions, the integration of any such acquisition candidates, the value of those acquisitions to our customers and shareholders, and the financing of such acquisitions; risks related to our indebtedness and compliance with covenants contained in our financing arrangements, and whether any available financing may be sufficient to address our needs; risks associated with efforts to shift the Company’s book of business to higher-margin, longer-run opportunities; risks associated with the Company’s entry into and growth in certain markets; risks and uncertainties associated with seeking and implementing manufacturing efficiencies and implementing new production equipment; risks and uncertainties associated with growth of the Company’s business and increases to sales, earnings and earnings per share; risks relating to our ability to achieve our environmental, social and governance (“ESG”) objectives or otherwise meet the expectations of our stakeholders with respect to ESG matters; risks relating to cybersecurity, including cyber-attacks on the Company’s information technology infrastructure, products, suppliers, customers and partners, and cybersecurity-related regulations; and risks associated with new product and program launches. Accordingly, actual results may differ materially.

Current wording

Investors are cautioned that such forward-looking statements involve risks and uncertainties that could adversely affect the Company’s business and prospects, and otherwise cause actual results to differ materially from those anticipated by such forward-looking statements, or otherwise, including without limitation: our financial condition and results of operations, including risks relating to substantially decreased demand for the Company’s products; risks relating to the potential closure of any of the Company’s facilities or the unavailability of key personnel or other employees; risks that the Company’s inventory, cash reserves, liquidity or capital resources may be insufficient; risks relating to delayed payments by our customers and the potential for reduced or canceled orders; risks related to customer concentration; risks related to global conflict or civil unrest to the efficacy of our manufacturing process; risks associated with the identification of suitable acquisition candidates and the successful, efficient execution of acquisition transactions, the integration of any such acquisition candidates, the value of those acquisitions to our customers and shareholders, and the financing of such acquisitions; risks related to our indebtedness and compliance with covenants contained in our financing arrangements, and whether any available financing may be sufficient to address our needs; risks associated with efforts to shift the Company’s book of business to higher-margin, longer-run opportunities; risks associated with the Company’s entry into and growth in certain markets; risks and uncertainties associated with seeking and implementing manufacturing efficiencies and implementing new production equipment; risks associated with governmental regulations and/or sanctions affecting the import and export of products, including global trade barriers, additional taxes, tariff increases, cash repatriation restrictions, retaliations and boycotts between the U.S. and other countries; risks associated with domestic, regional and global political risks and uncertainties; risks and uncertainties associated with growth of the Company’s business and increases to sales, earnings and earnings per share; risks relating to cybersecurity, including cyber-attacks on the Company’s information technology infrastructure, products, suppliers, customers and partners, and cybersecurity-related regulations; risks associated with our or third-party use of artificial intelligence technologies; risks associated with new product and program launches; risks relating to our performance and the performance of our counterparties under the agreements we have entered into; the risk that our two largest customers, on whom we depend for a substantial portion of our annual revenues, will not purchase the expected volume of goods under the supply agreements we have entered into with them because, among other things, they no longer require the products at all or to the degree they…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Selling, general, and administrative expenses (“SG&A”) increased approximately 26.6% to $15.8 million for the three-month period ended September 30, 2024, from $12.5 million for the same period in 2023, largely due to SG&A from the Company’s recent acquisitions as well as increased performance-based compensation and professional fees. As a percentage of sales, SG&A decreased to 10.9% for the three-month period ended September 30, 2024, from 12.4% for the same three-month period in 2023 reflecting the leverage of the sales increase over relatively fixed SG&A

Current wording

Selling, general, and administrative expenses (“SG&A”) increased approximately 34.6% to $18.7 million for the three-month period ended March 31, 2025, from $13.9 million for the same period in 2024, which we primarily attribute to SG&A from the Company’s 2024 acquisitions. As a percentage of sales, SG&A decreased to 12.6% for the three-month period ended March 31, 2025, from 13.2% for the same three-month period in 2024.

Previous wording

In connection with the acquisitions of Welch and Marble in 2024, and DAS Medical in 2021, the Company is required to make contingent payments, subject to the entities achieving certain financial performance thresholds. The contingent consideration payments for the Welch, Marble and the DAS Medical acquisitions are up to $6 million, $500 thousand and $20 million, respectively. The fair value of the liability for the contingent consideration payments recognized upon the acquisition as part of the purchase accounting opening balance sheets totaled approximately $800 thousand, $400 thousand and $5.2 million for the Welch, Marble and the DAS Medical acquisitions, respectively, and was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in the initial calculation were management’s financial forecasts, discount rate and various volatility factors. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. Contingent consideration is considered to be a Level 3 financial liability that is re-measured each reporting period. The fair value of the liability for the contingent consideration payments recognized at September 30, 2024 totaled approximately $10.0 million out of the remaining potential payments of $16.5 million. The change in fair value of contingent consideration for the acquisitions for the three- and nine-month periods ended September 30, 2024, resulted in an expense of approximately $0.2 million and $0.7 million, respectively, and is included in change in fair value of contingent consideration in the condensed consolidated statements of comprehensive income.

Current wording

In connection with the acquisitions of Welch and Marble in 2024, and DAS Medical in 2021, the Company is required to make contingent payments, subject to the entities achieving certain financial performance thresholds. The contingent consideration payments for the Welch, Marble and the DAS Medical acquisitions are up to $6 million, $500 thousand and $20 million, respectively. The fair value of the liability for the contingent consideration payments recognized upon the acquisition as part of the purchase accounting opening balance sheets totaled approximately $800 thousand, $400 thousand and $5.2 million for the Welch, Marble and the DAS Medical acquisitions, respectively, and was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in the initial calculation were management’s financial forecasts, discount rate and various volatility factors. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. Contingent consideration is considered to be a Level 3 financial liability that is re-measured each reporting period. The Company paid approximately $0.3 million during the three months ended March 31, 2025, related to contingent consideration. The fair value of the liability for the contingent consideration payments recognized at March 31, 2025 totaled approximately $10.3 million out of the remaining potential payments of $14.3 million. The change in fair value of contingent consideration for the acquisitions is included in change in fair value of contingent consideration in the consolidated statements of comprehensive income.

Previous wording

Net interest expense was approximately $3.5 million and $0.9 million for the three-month periods ended September 30, 2024 and 2023, respectively. The increase in net interest expense for the three-month period ended September 30, 2024 was primarily due to higher debt related to 2024 acquisitions. Interest income was immaterial.

Current wording

Net interest expense was approximately $2.8 million and $0.6 million for the three-month periods ended March 31, 2025 and 2024, respectively. The increase in net interest expense for the three-month period ended March 31, 2025 was primarily due to higher debt related to borrowings for the 2024 acquisitions. Interest income was immaterial.

Previous wording

The Company recorded income tax expense of approximately 22.9% and 17.3% of income before income tax expense, for the three-month periods ended September 30, 2024 and 2023, respectively. The increase in the effective tax rate for the current period as compared to the prior period is largely due to the difference in discrete items during the two periods.

Current wording

The Company recorded tax expense of approximately 15.3% and 17.2% of income before income tax expense, for each of the three-month periods ended March 31, 2025 and 2024, respectively. The decrease in the effective tax rate for the current period as compared to the prior period is largely due to increased discrete tax benefits associated with vested equity and a state tax refund.

Previous wording

Net cash provided by operations for the nine-month period ended September 30, 2024 was approximately $42.2 million and was primarily a result of net income generated of approximately $42.6 million, depreciation and amortization of approximately $10.1 million, share-based compensation of approximately $4.8 million, a change in the fair value of contingent consideration of approximately $0.7 million, a decrease in deferred taxes of approximately $0.8 million, and a decrease in accounts payable of approximately $0.7 million due to the timing of vendor payments in the ordinary course of business.

Current wording

Net cash provided by operations for the three-month period ended March 31, 2025 was approximately $13.8 million and was primarily a result of net income generated of approximately $17.2 million, depreciation and amortization of approximately $4.6 million, share-based compensation of approximately $2.2 million, a change in the fair value of contingent consideration of approximately $0.3 million, an increase in deferred taxes of approximately $1.4 million, an increase in income taxes payable of approximately $1.8 million due to the timing of payment of tax estimates, and an increase in accounts payable of approximately $5.3 million due to the building of inventory to expected demand and the timing of vendor payments in the ordinary course of business.

Previous wording

These cash inflows and adjustments to income were partially offset by an increase in accounts receivable of approximately $2.9 million resulting primarily from an increase in sales from the last 60 days of Q3 2024 as compared to Q4 2023, partially offset by the collection of an escrow receivable, an increase in inventory of approximately $5.6 million due to inventory build for upcoming demand, an increase in prepaid expenses of approximately $0.9 million primarily due to the payment of current year insurance policies, an increase in refundable income taxes of $0.8 million due to the timing of payment of tax estimates, an increase in other assets of approximately $0.5 million, a decrease in accrued expenses of approximately $0.6 million due primarily to the net payment of accrued compensation, a decrease in deferred revenue of approximately $0.8 million due to the recognition of deferred tooling and development revenue, and a decrease in other long-term liabilities of approximately $5.4 million due primarily to non-compete payments and payments of contingent consideration.

Current wording

These cash inflows and adjustments to income were partially offset by an increase in accounts receivable of approximately $8.9 million resulting primarily from an increase in sales from the last 60 days of Q1 2025 as compared to Q4 2024, an increase in inventory of approximately $2.2 million due to inventory build for upcoming expected demand, an increase in prepaid expenses of approximately $0.8 million primarily due to the payment of current year insurance policies, an increase in other assets of approximately $2.3 million primarily due to the payment of an exclusivity fee on a long term contract, a decrease in accrued expenses of approximately $1.9 million due primarily to the payment of accrued compensation, and a decrease in other long-term liabilities of approximately $2.9 million due primarily to non-compete payments and acquisition holdback payments.

Previous wording

Net cash used in investing activities during the nine-month period ended September 30, 2024 was approximately $206.3 million and was primarily the result of the acquisition of Marble Medical, AJR Enterprises, Welch Fluorocarbon, and AQF Medical, and the additions of manufacturing machinery and equipment and various building improvements across the Company.

Current wording

Net cash used in investing activities during the three-month period ended March 31, 2025 was approximately $2.8 million and was primarily the result of additions of manufacturing machinery and equipment and various building improvements across the Company.

Previous wording

Net cash provided by financing activities was approximately $175.1 million during the nine-month period ended September 30, 2024 and was primarily the result of borrowings under the Company’s Third Amended and Restated Credit Agreement of approximately $240.2 million to recent acquisitions. These borrowings were partially offset by payments on the revolving line of credit of approximately $28.2 million, principal payments of long-term debt of approximately $32.0 million, payments of contingent consideration of approximately $0.2 million and payments of statutory withholding for stock options exercised and restricted stock units vested of approximately $4.7 million.

Current wording

Net cash used for financing activities was approximately $10.7 million during the three-month period ended March 31, 2025 and was primarily the result of payments on the revolving line of credit of approximately $12.5 million, principal payments of long-term debt of approximately $3.1 million, payments of contingent consideration of approximately $0.3 million and payments of statutory withholding for stock options exercised and restricted stock units vested of approximately $3.9 million. These payments were partially offset by borrowings under our revolving line of credit of approximately $9.0 million, and proceeds from the exercise of stock options of approximately $0.1 million.

Previous wording

The credit facilities under the Third Amended and Restated Credit Agreement consist of a secured term loan to the Company of$125 million and a secured revolving credit facility, under which the Company may borrow up to $150 million. The Third Amended and Restated Credit Facilities mature on June 27, 2029. This maturity date is subject to acceleration and the Company could be subject to additional fees and expenses in certain circumstances should one or more events of default described in the Third Amended and Restated Credit Agreement occur. The secured term loan requires quarterly principal payments of $3,125,000 that commence on December 31, 2024. The proceeds of the Third Amended and Restated Credit Agreement may be used for general corporate purposes, including funding the acquisition of AJR Enterprises, LLC, as well as certain other permitted acquisitions. The Company’s obligations under the Third Amended and Restated Credit Agreement are guaranteed by Subsidiary Guarantors and secured by substantially all assets of the Company.

Current wording

The credit facilities under the Third Amended and Restated Credit Agreement consist of a secured term loan to the Company of $125 million and a secured revolving credit facility, under which the Company may borrow up to $150 million. The Third Amended and Restated Credit Facilities mature on June 27, 2029. This maturity date is subject to acceleration and the Company could be subject to additional fees and expenses in certain circumstances should one or more events of default described in the Third Amended and Restated Credit Agreement occur. The secured term loan requires quarterly principal payments of $3,125,000 that commenced on December 31, 2024. The proceeds of the Third Amended and Restated Credit Agreement may be used for general corporate purposes, including funding certain acquisitions (see Note 2 for more information regarding these acquisitions), as well as certain other permitted acquisitions. The Company’s obligations under the Third Amended and Restated Credit Agreement are guaranteed by Subsidiary Guarantors and secured by substantially all assets of the Company.

Previous wording

The Third Amended and Restated Credit Facilities call for interest of SOFR plus a margin that ranges from 1.25% to 2.25% or, at the discretion of the Company, the bank’s prime rate plus a margin that ranges from .25% to 1.25%. In both cases the applicable margin is dependent upon Company performance. Under the Third Amended and Restated Credit Agreement, the Company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The Third Amended and Restated Credit Agreement contains other covenants customary for transactions of this type, including restrictions on certain payments, permitted indebtedness and permitted investments.

Current wording

The Third Amended and Restated Credit Facilities call for interest at the Secured Overnight Financing Rate (“SOFR”) plus a margin that ranges from 1.25% to 2.25% or, at the discretion of the Company, the bank’s prime rate plus a margin that ranges from .25% to 1.25%. In both cases the applicable margin is dependent upon Company performance. Under the Third Amended and Restated Credit Agreement, the Company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The Third Amended and Restated Credit Agreement contains other covenants customary for transactions of this type, including restrictions on certain payments, permitted indebtedness and permitted investments.

Previous wording

At September 30, 2024, the Company had approximately $212 million in outstanding borrowings under the Third Amended and Restated Credit Agreement, and also had approximately $0.7 million in standby letters of credit outstanding, drawable as a financial guarantee on worker’s compensation insurance policies. At September 30, 2024, the applicable interest rate was approximately 6.5% and the Company was in compliance with all covenants under the Third Amended and Restated Credit Agreement.

Current wording

At March 31, 2025, the Company had approximately $182.8 million in outstanding borrowings under the Third Amended and Restated Credit Agreement and also had approximately $0.7 million in standby letters of credit outstanding, drawable as a financial guarantee on worker’s compensation insurance policies. At March 31, 2025, the weighted average interest rate was approximately 5.9% and the Company was in compliance with all covenants under the Third Amended and Restated Credit Agreement.

Previous wording

The Company requires cash to pay its operating expenses, purchase capital equipment, and to service its contractual obligations. The Company’s principal sources of funds are its operations and its Third Amended and Restated Credit Agreement. The Company generated cash of approximately $42.2 million from operations during the nine-month period ended September 30, 2024. The Company cannot guarantee that its operations will generate cash in future periods. The Company’s longer-term liquidity is contingent upon future operating performance and availability of draws on its revolving credit facility. Further, the economic uncertainty resulting from events including inflation, bank failures, and other factors beyond the control of the Company could affect the Company’s long-term ability to access the public markets and obtain necessary capital in order to properly capitalize and continue operations.

Current wording

The Company requires cash to pay its operating expenses, purchase capital equipment, and to service its contractual obligations. The Company’s principal sources of funds are its operations and its Third Amended and Restated Credit Agreement. The Company generated cash of approximately $13.8 million from operations during the three-month period ended March 31, 2025. The Company cannot guarantee that its operations will generate cash in future periods. The Company’s longer-term liquidity is contingent upon future operating performance and availability of draws on its revolving credit facility. Further, the economic uncertainty resulting from events including inflation, tariffs, bank failures, and other factors beyond the control of the Company could affect the Company’s long-term ability to access the public markets and obtain necessary capital in order to properly capitalize and continue operations.

Previous wording

The Company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants and accommodate anticipated growth in demand. The Company may consider additional acquisitions of companies, technologies, or products that are complementary to its business. The Company believes that its existing resources, including its revolving credit facility, together with cash expected to be generated from operations, will be sufficient to fund its cash flow requirements, including capital asset acquisitions, through the next twelve months.

Current wording

The Company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants and accommodate anticipated growth in demand. The Company may consider additional acquisitions of companies, technologies, or products that are complementary to its business. The Company believes that its existing resources, including its revolving credit facility, together with cash expected to be generated from operations, will be sufficient to fund its cash flow requirements, including capital expenditures, through the next twelve months.

Previous wording

The Company may also require additional capital in the future to fund capital expenditures, acquisitions, or other investments. These capital requirements could be substantial. The Company anticipates that any future expansion of its business will be financed through existing resources, cash flow from operations, the Company's revolving credit facility, or other new financing. The Company cannot guarantee that it will be able to meet existing financial covenants or obtain other new financing on favorable terms, if at all. The Company's liquidity will be impacted to the extent additional stock repurchases are made under the Company's stock repurchase program.

Current wording

The Company may also require additional capital in the future to fund capital expenditures, acquisitions, or other investments. These capital requirements could be substantial. The Company anticipates that any future expansion of its business will be financed through existing resources, cash flow from operations, the Company's revolving credit facility, or other new financing. The Company cannot guarantee that it will be able to meet existing financial covenants or obtain other new financing on favorable terms, if at all.

Previous wording

The Company accounts for treasury stock under the cost method, using the first-in, first-out cost flow assumption, and includes treasury stock as a component of stockholders’ equity. On June 16, 2015, the Company announced that its Board of Directors authorized the repurchase of up to $10.0 million of the Company’s outstanding common stock. Under the program, the Company is authorized to repurchase shares through Rule 10b5-1 plans, open market purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934. The stock repurchase program will end upon the earlier of the date on which the plan is terminated by the Board or when all authorized repurchases are completed. The timing and amount of stock repurchases, if any, will be determined based upon our evaluation of market conditions and other factors. The stock repurchase program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the program. There were no share repurchases during the nine-month periods ended September 30, 2024 and 2023. At September 30, 2024, approximately $9.4 million was available for future repurchases of the Company’s common stock under this authorization.

Current wording

The Company accounts for treasury stock under the cost method, using the first-in, first-out cost flow assumption, and includes treasury stock as a component of stockholders’ equity. On June 16, 2015, the Company announced that its Board of Directors authorized the repurchase of up to $10.0 million of the Company’s outstanding common stock. Under the program, the Company is authorized to repurchase shares through Rule 10b5-1 plans, open market purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934. The stock repurchase program was terminated by the Board in March, 2025. There were no share repurchases during the three-month periods ended March 31, 2025 and 2024.

Previous wording

There have been no material changes to the Company’s Critical Accounting Estimates, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, with the exception of the item noted below:

Current wording

There have been no material changes to the Company’s Critical Accounting Estimates, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.