UFP Technologies, Inc. (NASDAQ: UFPT) — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing also reports fourth-quarter results. UFP designs, engineers, and manufactures custom products, primarily for medical-device and sterile-packaging customers, alongside automotive, aerospace and defense, consumer, electronics, and industrial markets.
Financial performance
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $353.8 million | $206.3 million |
| Gross profit / margin | $90.3 million / 25.5% | $51.1 million / 24.8% |
| Operating income / margin | $55.4 million / 15.7% | $21.2 million / 10.3% |
| Net income / net margin | $41.8 million / 11.8% | $15.9 million / 7.7% |
| Diluted EPS | $5.45 | $2.09 |
| Net cash from operations | $17.7 million | $14.3 million |
For Q4 2022, revenue was $91.2 million, gross profit $23.3 million, and net income $8.5 million; diluted EPS was $1.10. Q4 2021 revenue was $56.3 million, gross profit $13.1 million, net income $3.2 million, and diluted EPS $0.42.
At year-end, cash was $4.5 million, current assets $116.3 million, and current liabilities $56.0 million. Total debt was $55.0 million ($19.0 million revolver and $36.0 million term loan); long-term debt excluding the current portion was $51.0 million. The $130 million secured facility provides a $90 million revolver and $40 million term loan. The company reported an approximately 5.2% interest rate and compliance with covenants at year-end. The filing does not state a specific amount of unused revolver availability.
Changes and key drivers
- Revenue increased 71.5%, driven by acquisitions and approximately 18.6% organic growth, according to the company overview. Medical-market sales rose 116.0%, including $121.9 million from acquired businesses and 24.0% organic growth in that market. Medical generated 80.9% of FY 2022 sales.
- Gross margin improved 0.7 percentage point, which management attributed mainly to organic-sales leverage on fixed overhead, partly offset by inflation in materials and labor. SG&A rose 55.3% to $45.8 million but fell to 12.9% of sales from 14.3%.
- Operating income rose 161.1% and net income 163.1%. Reported operating results included a $15.7 million gain on the Molded Fiber sale and a $6.1 million gain on fixed-asset disposals, partly offset by a $9.8 million contingent-consideration remeasurement expense. Reported margins therefore include significant nonrecurring or acquisition-related items; the filing does not provide adjusted earnings figures.
- Advant Medical was acquired in March 2022 for approximately $21.2 million. Molded Fiber and related real estate were sold in July for approximately $31.5 million; proceeds helped repay revolving debt and fund related taxes. Contech and DAS Medical were acquired in 2021.
- Operating cash flow increased to $17.7 million, but receivables rose $16.9 million and inventory rose $19.6 million, reflecting higher sales, acquired balances, and inventory builds. Investing activities provided $1.3 million, while financing activities used $25.9 million.
Outlook, risks, and other notable items
- No numeric revenue or earnings guidance is provided. Management planned to add manufacturing capacity in 2023 and said cash from operations and existing resources, including the revolver, were expected to cover requirements through the next 12 months. It may pursue further acquisitions, but noted that future financing and covenant compliance are not assured.
- Key stated risks include inflation and inability to pass cost increases through promptly; raw-material and labor shortages; reliance on a limited supplier base for certain foams; variable-rate debt; acquisition integration and contingent-payment uncertainty; product quality and regulatory requirements; and geopolitical, cybersecurity, and international-operating risks.
- Customer concentration increased: one customer represented approximately 21% of 2022 sales, and the top ten represented approximately 47%. No customer exceeded 10% in 2021 or 2020. Sales outside the U.S. were 16% of 2022 revenue.
- Earn-out liabilities for DAS Medical and Contech were $14.6 million at year-end, with combined potential contingent payments of up to $25 million; the liability depends on performance estimates. The company also has long-term non-compete payment obligations related to DAS Medical.
- Cash dividends were not paid in 2022 or 2021. Management and the auditor reported effective internal controls, but Advant Medical was excluded from the 2022 internal-control assessment because of its recent acquisition. The auditor issued unqualified opinions on the financial statements and internal controls. Management disclosed one employee claim it did not expect to have a material effect.
Investor verification priorities
- Separate underlying organic growth and recurring profitability from acquisition contributions, divestiture effects, asset-sale gains, and contingent-consideration charges.
- Track receivables, inventory, and operating cash conversion as sales and acquired operations expand.
- Review customer concentration and the largest customer’s continuing orders and payment performance.
- Confirm debt availability, interest-rate exposure, covenant headroom, and the timing and amount of earn-out and non-compete payments.
- Monitor Advant integration, internal-control coverage, and execution of planned capacity additions.