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DATE
Tuesday, May 5, 2026 at 9 a.m. ET
CALL PARTICIPANTS
- Chairman & Chief Executive Officer — R. Jeffery Bailly
- Chief Financial Officer — Ronald J. Lataille
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TAKEAWAYS
- Total Revenue Growth -- 4.1%, with medical sales up 5.9% and nonmedical sales down 15% due to strategic portfolio focus.
- Segment Growth -- Robotic surgery up 7%, patient surfaces & support up 11%, and interventional and surgical up 15%; these gains were partially offset by declines in wound care tied to two major customers' inventory reductions.
- Gross Margin -- Improved to 28.8%, up from 28.5%, aided by a 200%+ revenue increase in Santiago, Dominican Republic, which leveraged fixed costs.
- Adjusted Operating Margin -- Stood at 16.7% of sales, maintaining sequential stability.
- Adjusted Diluted EPS -- $2.48, registering slight year-over-year growth.
- Cash From Operations -- $3.2 million, lowered by elevated working capital needs driven by strong March sales.
- SG&A Expenses -- Rose by $2.2 million to $21 million, including $750,000 in new wages and benefits, $0.5 million in noncash equity compensation, and $0.5 million in nonrecurring legal expenses related to a cyber breach and CEO transition.
- Program Launches -- Four simultaneous launches underway; three customers already requested capacity doubling, with revenue impact expected to ramp meaningfully in the second half.
- Capacity Expansion -- New buildings coming online in both Santiago and La Romana (Dominican Republic) in the next quarter; additional APAC expansion in early planning.
- Customer Concentration -- Top two customers delivered 7.5% combined sales growth.
- Organic Sales Growth -- Essentially flat owing to slow program ramps and ongoing softness in nonmedical business.
- Acquisition Pipeline -- Three deals completed in 2025 and four in 2024 are performing well; one large deal in process but majority of potential targets are medium-sized.
- Debt Repayment -- Roughly $4 million paid down after period-end.
- Capital Expenditures -- $1.7 million spent in the quarter.
- Leverage Ratio -- Ended the period at approximately 1.14x.
SUMMARY
UFP Technologies (UFPT +2.72%) reported single-digit revenue growth driven by medical end markets and the accelerating contribution of new programs, while profit margins expanded modestly due to operational leverage, especially at the Santiago facility. Initiatives to expand physical capacity in the Dominican Republic and the Asia-Pacific region were explicitly identified as strategic efforts to accommodate expected demand growth, with three of four major new programs already requiring capacity increases. Although SG&A rose significantly from investments and unusual legal costs, working capital and liquidity remained in check, evidenced by ongoing debt reduction and active cash generation. The transition to a new CEO was cited as having organizational support, with the outgoing CEO affirming continued involvement in acquisitions and key initiatives.
- CFO Lataille stated, "effective tariffs are net down from our last update," projecting a positive margin effect, while warning that "raw material inflationary increases caused by the increased price of oil stemming from the conflict in Iran" present cost uncertainty he expects to pass through.
- Management acknowledged a $1 million sales shortfall from a customer cyber event that will shift into the second quarter.
- AJR segment labor inefficiencies, though diminishing, still impact profitability, but management outlined phased improvements and headcount optimization as work transitions to lower-cost regions.
- Automotive nonmedical business is being deliberately phased out, while aerospace and defense softness is expected to reverse due to known upcoming activity.
- Sustained acquisition discipline was emphasized; management communicated that acquisition-driven growth could remain a significant driver over multiple years despite current pipeline quietness.
INDUSTRY GLOSSARY
- PPAP: Production Part Approval Process—a standardized procedure in manufacturing used to ensure consistent quality and compliance before production scaling.
Full Conference Call Transcript
R. Bailly: Thank you, Ron, and thank you to everyone joining the call. I am pleased with our first quarter results and start to the year, including important progress on our strategic growth initiatives. Our revenue grew 4.1% with medical sales growing 5.9% and our nonmedical sales declining 15% as we continue to focus our efforts on best fit fast-growing segments in the MedTech space. Growth in our robotic surgery, patient surfaces & support and interventional and surgical segments of 7%, 11% and 15%, respectively, were partially offset by declines in Wound Care as 2 major customers slowed temporarily due to excess inventory.
EPS grew more slowly than revenue due in part to, number one, start-up costs related to our 4 simultaneous program launches, each of which is slowly ramping up and expected to make meaningful contributions in the second half of the year. Number two, softer results at AJR versus Q1 of 2025 as they continue to work through their labor inefficiency issues related to turnover following our E-Verify or legal right to work process last year. And number three, nonrecurring legal expenses related to a cyberattack and the CEO transition. A lot of exciting things are happening on the business expansion front.
In addition to the 4 successful program launches, 3 of those 4 customers have already asked us to double our capacity on the new programs. We are also adding new buildings in both Santiago, DR and La Romana DR to expand capacity and accommodate forecast growth in patient surfaces & support and robotic surgery. In both locations, we are co-investing with our customers and will take possession of the buildings in the second quarter of this year. We're also in the planning stages to add capacity in the APAC region to meet growing demand in Asia.
Our new product development labs in La Romana and Grand Rapids are performing well, adding new programs and new talent to meet growing customer demand. On the acquisition front, we are reviewing multiple opportunities. Although we have been outbid on a couple of recent opportunities, we remain disciplined in our approach to vetting and valuing strategic acquisitions. The 3 acquisitions we completed in 2025 and the 4 in 2024 are all performing well and have increased our value to customers and strengthened our position in the market. Mitch Rock is excited to take over as CEO in June and is well prepared to succeed.
We have a deep team of talented managers supporting him who understand our strategy and how they fit in. This team, together with our vendor partners, add significant value to our blue-chip customers in growing market segments. Each of these 3 critical components of our success, our team, our customers and our vendor partners, trust and respects Mitch and looks forward to continuing to grow with UFP. So for these reasons and many more, I'm very excited about the future of UFP Technologies and the value it can create for our shareholders. Thank you, and I will now hand it back to Ron to provide more color on our financials.
Ronald Lataille: Thank you, Jeff. Before reviewing operating results, I'd like to give a brief update on tariffs and the impact of the conflict in Iran on our raw material input costs. In general, effective tariffs are net down from our last update. This should have a positive prospective impact on margins. Additionally, as our suppliers seek refunds from the government, we will be looking for these to flow through to us in the form of vendor credits. Countering these savings are raw material inflationary increases caused by the increased price of oil stemming from the conflict in Iran. It is difficult to estimate the ultimate impact as the news changes daily, and therefore, the price of oil has been volatile.
It remains our expectation that we will pass these through to our customers. Moving to operations, as Jeff mentioned, overall sales were up 4%, fueled by a 6% increase in medical sales. Strength in this area was driven by our robotic-assisted surgery, patient surfaces and support and interventional and surgical submarkets. As anticipated, organic sales growth for the quarter was essentially flat as we are slowly ramping our new programs and our non-medical business continues to soften. We anticipate that the new program revenue growth will accelerate in the second half of the year. In addition, approximately $1 million in sales pushed into the second quarter due to a cyber event at one of our key customers.
Of note, sales to our 2 largest customers collectively grew 7.5% during the first quarter. Gross profit as a percentage of sales or gross margin increased to 28.8% from 28.5% last year. This improvement was despite continued labor inefficiencies at AJR, which, although diminishing, are still impacting cost of sales. Helping to drive the improvement was a more than 200% increase in revenue in Santiago, Dominican Republic, enabling us to leverage fixed overhead costs at this location. SG&A expenses for our first quarter of 2026 increased by $2.2 million to $21 million.
This is largely due to approximately $750,000 in wages and benefits for back-office investments made at various times during 2025 to support our larger organization as well as approximately $0.5 million in noncash equity compensation. We also incurred approximately $0.5 million in nonrecurring legal expenses due to the cyber breach incident in mid-February as well as the anticipated CEO transition. Adjusted operating margin for the first quarter was 16.7% of sales and adjusted earnings per diluted share outstanding was $2.48, up slightly from last year. We generated approximately $3.2 million in cash from operations during our first quarter. This was lower than is typical as a much stronger March sales month created a correspondingly high working capital need.
Since March 31, we have paid down approximately $4 million in debt. Capital expenditures were $1.7 million during our first quarter, and we ended with a leverage ratio of approximately 1.14x. With that, I now turn it back to the operator for questions.
Operator: [Operator Instructions]The first question comes from Brett Fishbin with KeyBanc Capital Markets.
Brett Fishbin: I just wanted to maybe start off with the robotics segment and I saw in the press release, you mentioned 7% growth in this category. I was hoping you could just discuss this a little bit more, maybe touch on the contribution from the new products that are starting to ramp in this segment? And then also just curious how growth is trending across your larger customer base outside of the large robotics customer?
Ronald Lataille: Sure. Thanks, Brett. So the 7% growth was a blend, but it's primarily anchor programs at this -- or existing programs at this point. The new programs that we've launched are still in their infancy stage. But over time, they will be a bigger and bigger component of our growth. So we are pleased with the start to the year in the robotic surgery area, particularly at the 7%, it was a little higher than we had originally forecast. With respect to -- what was the second part of the question, I'm sorry?
Brett Fishbin: I was just curious, I guess you kind of addressed it. I was asking about the new product launches and then also just how non-Intuitive customers overall are doing.
Ronald Lataille: Yes. Our business is becoming more and more diverse, more and more diverse within Intuitive with additional programs and more and more diverse with additional customers. And I think you'll consider -- you'll continue to see less of a dominant position in that one customer as we go forward.
R. Bailly: And then maybe just more broadly, you mentioned 4 large programs that are currently in the ramp phase. So maybe just a little bit more flavor around how you're thinking about those opportunities. I know you mentioned that they're expected to become significant contributors in the back half. Maybe just a little bit more detail on how you're thinking about that.
Ronald Lataille: Yes. I mean 3 of the 4 programs are brand new and one was a transfer. And so the 3 new programs, each of those customers has already asked us to at least double our capacity with them. So 3 very successful launches, but the start-up revenue still is small. So the revenue will ramp into Q2 and be more robust in Q3 and Q4 and then continue on. And as we add new capacity, those 3 programs will be meaningful contributors. Two were robotic surgery and one was an infection prevention.
Brett Fishbin: All right. Perfect. And last question for me. Just the nonmedical business was down a little bit more than we were expecting. I wanted to just ask if you think that's kind of the right way to think about it for the rest of the year from a growth perspective or if anything is changing in a notable way as the year progresses?
R. Bailly: Yes, absolutely. So the dominant drop was in automotive, which I think is going to be the new normal as we literally phase out of this market. There was also a softer side in the aerospace and defense, and that will flip. We already have some activity that's going to take that from slowing back to growing. But I think you'll see advanced components continue to be little to no growth over time in certain markets like automotive, we will completely phase out of.
Operator: The next question comes from Justin Ages with CJS Securities.
Justin Ages: You mentioned the 4 large programs ramping and contributing in the second half. Can we dig down a bit and just talk about the impact to profitability from those? How long will those headwinds -- well, I don't want to call them headwinds, but how long will those like start-up costs be in there? Are we going to see that go down once the programs start contributing more in the second half?
Ronald Lataille: Yes, absolutely. So the start-up costs relate to getting the whole team there prepared, trained, et cetera, before the volume follows. So all those hires have been made, those people have been trained. And as the volume ramps up, we'll be absorbing those costs. And so the fixed costs won't go up, but the revenue will. So I think you'll see just a smooth plus. They're very slow starts. We'll ship a handful of parts and then a pallet and then eventually, they'll sort of turn on the spigot. And by the second half of the year, I think it will be robust contributions from all 3 of those brand-new programs.
Justin Ages: Okay. I appreciate that. And then you mentioned taking control of 2 buildings, one in La Romana and one in Santiago. Can you just remind us how many buildings you have in each location then and what the capacity looks like after that? Because you mentioned already customers you have are asking for increased capacity. So just wondering if there are new additional buildings that are already kind of on your pipeline coming down the pike.
Ronald Lataille: So in La Romana, this will be our sixth building. And so it's not exactly even how much capacity it adds, but it's approximately 1/6 more capacity. And so that's primarily for robotic surgery. We set up a big infection prevention program in one of the other buildings. So the La Romana campus is dominantly robotic surgery. In Santiago, we're adding our third building, and that one is predominantly patient surfaces and support. And that will probably stay that way for the time being.
So if we have new low-cost country applications, we'll probably be directing them towards La Romana in the short term because that team is very experienced and their quality systems and everything have been going for literally decades, whereas Santiago is a little more of a start-up situation still. [Operator Instructions]
Operator: The next question comes from Andrew Cooper with Raymond James.
Andrew Cooper: Maybe first, I just want to touch a little bit on the Wound Care drags you called out tied to inventory. I guess can you give a little bit of a sense of magnitude for those programs? And then what gives you the confidence and comfort that this is purely an inventory dynamic that should normalize as the year progresses?
Ronald Lataille: So these are both -- I mean, they're large customers within wound care, but not necessarily large customers in the whole of UFP Technologies. Both had inventory issues that they thought were in the sort of 8-month range of impact to us. But at the same time, we have 2 major programs that were in the development stage in wound care. So I'm still long term, very bullish on wound care. There seems to be a resurgence of interest in this area. So to answer your question, probably a 3-quarter impact from the slowdown in wound care and then back to normal. And then probably next year, we'd be overlaying some new programs.
Andrew Cooper: Okay. Helpful. And then shifting a little bit to the AJR business. I guess 2-part question. First, can you give us a sense -- I know you called out the 200% growth in what's coming out of Santiago, but what inning of that transition of getting those products from Illinois to Santiago, would you say we're in? And then a similar question when we think about the labor headwinds, where are we in terms of temp labor versus full-time hires and really sort of getting those hires trained and back to full capacity and where you would expect to be to start working down that backlog in a more meaningful way?
Ronald Lataille: Yes, absolutely. So with respect to the transfers, we think in terms of 3 major programs. So number one, completely transferred and running at rate. Number two, now completely transferred and so about to ramp up in rate. So we had sort of a tripling of volume over the last 12 months, and that will continue to grow. Program #3 has not really started. So we have the space, the lease. We've got the equipment that's shown up on site, but there's a long sort of PPAP and protocol that we have to go through before that will get up and running. And that may take more than a year, frankly, to be a meaningful contributor to Santiago.
With respect to AJR, as Santiago comes up, it takes some pressure off AJR. So we have a lot of employees in Chicago. We've really fueled -- or geared up quickly to get our backlog down. The problem is not only do we have backlog, but our customer was growing rapidly. So we've been working quite a bit of overtime with a less efficient crew. And so that overtime is already beginning to subside a little. And then as we transfer more work, the less efficient employees will sort of naturally fall off and the ones that are most efficient and eligible for overtime and incentives, et cetera, will be the ones that stay.
So I expect to see a smooth plus on that. With respect to progress between Q3 and Q4, I think we cut the problem about in half. Between Q4 and Q1, we made about a 25% improvement. So there's still a ways to go. But I think it will accelerate when we ramp up in Santiago because, again, we have to keep all employees, whether efficient or not right now just because we're trying to get out of backlog situation. And then we'll end up with a more efficient crew when we're done, a smaller, more efficient crew in Illinois.
Andrew Cooper: Okay. Great. Super helpful. And then maybe last one, just would love a little bit more color on sort of what you're seeing in the M&A landscape and how you're thinking about it. I know you called out a couple of opportunities that were interesting, but maybe not as interesting from a dollar perspective to you as others. So just would love maybe the latest thinking on what that landscape looks like.
Ronald Lataille: Yes. We have a number of discussions underway. I would say that it's a little quiet right now, frankly. There were some big deals that went through that we bid on, a couple unsuccessfully, which we are absolutely fine with, by the way. And if we get outbid, we'd rather outbid by a lot than miss it by a little. So we are very disciplined in our process, both vetting strategically, vetting for culture and then vetting for value. We do have some small ones that we're working on, and we do have still one very large one that's percolating in the background that will probably take quite a while to come to fruition if it does.
But the perfect deals for us are more the medium-sized ones. And there's not as many of those as we'd like to see in the pipeline, but we are looking at deals every single week, and we have meetings with prospects every single week. So the pipeline is constantly being refilled and then vetted and some stuff falls off. So I mean, I still believe that over the next multiple years, acquisition growth will still be 50% of our overall growth. It's just hard to time. That's it.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Bailly, Chairman and Chief Executive Officer, for any closing remarks.
R. Bailly: Yes. Thank you, operator, and thank you to everybody joining the call. Just to close, this is my last call as CEO, and I really appreciate all the support of our shareholders. I'm super excited about the future of the company. UFP is still the largest investment I have by multiples of greater than 10 over the next largest stock, and it's the most exciting stock in my portfolio. I think the team of people taking over is super fired up and super excited. And it's a very deep, deep team of people. And so Mitch is well respected. He is ready to go, and he's well prepared to succeed.
I will be there for the next year as Executive Chair to support him with acquisitions, key strategic hires, et cetera. But I just want to say thank you, and I appreciate everybody.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
