UFP Technologies, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; filed March 11, 2016. The company designs and converts foam, plastics, composites and natural-fiber materials into custom products, serving medical, automotive, consumer, electronics, industrial, and aerospace and defense markets. It reports one operating segment.
Financial performance
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Net sales | $138.9 million | $139.3 million | -0.3% |
| Gross profit / margin | $37.5 million / 27.0% | $36.9 million / 26.5% | Margin +0.5 percentage points |
| Operating income / margin | $11.7 million / 8.4% | $11.6 million / 8.3% | +1.3% |
| Net income / margin | $7.6 million / 5.5% | $7.6 million / 5.4% | +0.4% |
| Diluted EPS | $1.05 | $1.05 | Unchanged |
| Cash from operations | $13.1 million | $11.1 million | +17.7% |
- Fourth-quarter 2015 sales were $33.9 million versus $35.3 million a year earlier; net income was $1.7 million versus $1.6 million, and diluted EPS was $0.23 versus $0.22.
- Medical sales rose 14.6% to $57.3 million and represented 41.3% of revenue. Electronics, industrial, and aerospace and defense sales fell 16.5%, 16.5%, and 13.2%, respectively. Automotive sales were $26.9 million, down from $27.4 million.
- Gross margin improved as overhead fell, including lower health-care and rent costs; higher labor costs partly offset these savings. SG&A was $24.0 million, modestly above 2014.
- Net income was substantially below 2013’s $11.3 million, when operating income was $17.4 million and gross margin was 29.5%.
Cash, liquidity, and debt
- Year-end cash and cash equivalents were $29.8 million, down from $34.1 million. Working capital was $52.6 million, versus $55.7 million; current assets were $63.6 million and current liabilities $11.0 million.
- Investing activities used $16.3 million, including $11.5 million for the Newburyport headquarters and manufacturing facility and $4.8 million for other capital additions. Cash from operations less capital expenditures was approximately negative $3.2 million.
- Total debt was $1.9 million, including $1.0 million current and $0.9 million long-term. No borrowings were outstanding under the $40 million revolving facility, which matures November 30, 2018; the company reported covenant compliance.
- Total assets were $120.0 million and stockholders’ equity was $103.6 million. The company repurchased 29,559 shares for approximately $587,000; $9.4 million remained under the authorization. No dividends were paid.
Outlook, developments, and risks
- Management expects approximately $1.0 million in annual savings from facility consolidations. It estimated total Massachusetts consolidation costs of about $2.1 million, with approximately $1.7 million incurred through year-end 2015; certain Georgetown operations were expected to move by June 30, 2016.
- Management said existing resources, operating cash flow, and available credit should fund expected requirements for the next 12 months. Plans included additional manufacturing capacity and possible further expansion at Newburyport, as well as potential strategic acquisitions. No specific revenue or earnings guidance was provided.
- Backlog was approximately $36.5 million as of February 6, 2016, down from $38.3 million a year earlier. Management cautions that backlog includes nonbinding blanket orders that customers may cancel or reschedule.
- Key risks include customer concentration (top ten customers were 25.7% of sales), cyclical end markets, raw-material and supplier availability and cost, execution and disruption risks from facility consolidations, and remaining ERP implementation work. Variable-rate borrowing also creates interest-rate exposure, though the revolving facility had no balance at year-end.
- The company reported ordinary-course administrative proceedings that management did not expect, in aggregate, to materially affect financial condition or results. Auditors issued unqualified opinions on the financial statements and internal controls; management also concluded internal controls were effective.
Important facts for investors to verify
- Whether the medical-market growth can offset continued weakness in electronics, industrial, and aerospace and defense sales.
- Whether consolidation savings are realized without disrupting production, delivery, or product quality, and how final costs compare with estimates.
- Whether capital spending and Newburyport investment translate into improved capacity utilization, margins, and operating cash flow.
- Customer and supplier concentration, backlog conversion and cancellation risk, and the company’s ability to pass through raw-material cost increases.
- Cash needs and covenant headroom under the revolving credit facility, particularly if acquisitions or additional investment are pursued.