UFP Technologies(UFPT) - 2024 Q2 - Quarterly Results

Executive Summary & Q2 2024 Highlights UFP Technologies reported record Q2 2024 results with significant growth in sales and net income, driven by strength in robotic surgery and infection prevention markets, also completing three strategic acquisitions expected to add substantial revenue and EBITDA, enhancing its market position and customer value Q2 2024 Financial Performance | Metric | Q2 2024 | Q2 2023 | YoY Change | | :----- | :------ | :------ | :--------- | | Net Income | $13.6 million | $11.9 million | +14.3% | | Diluted EPS | $1.75 | $1.55 | +12.9% | | Sales | $110.2 million | $100.0 million | +10.2% | | Gross Margin | 30.0% | 29.6% | +0.4 pp | YTD H1 2024 Financial Performance | Metric | H1 2024 | H1 2023 | YoY Change | | :----- | :------ | :------ | :--------- | | Net Income | $26.2 million | $21.6 million | +21.3% | | Diluted EPS | $3.38 | $2.81 | +20.3% | | Sales | $215.2 million | $197.8 million | +8.8% | - UFP Technologies completed three acquisitions (Marble Medical, AJR Enterprises, and Welch Fluorocarbon) between June 24 and July 15, which are expected to collectively add an estimated $90 million in revenue and $20 million in EBITDA[2] - The company anticipates important synergies from these acquisitions, a strong pipeline of product development business, additional acquisition opportunities, and has secured a new $275 million line of credit, expressing excitement about its future[3] Company Overview UFP Technologies is a designer and custom manufacturer specializing in comprehensive solutions for medical devices, sterile packaging, and other highly engineered custom products, serving as a key outsource partner to top medical device manufacturers globally - UFP Technologies is a designer and custom manufacturer of comprehensive solutions for medical devices, sterile packaging, and other highly engineered custom products[6] - The company serves as an important link in the medical device supply chain and a valued outsource partner to many of the top medical device manufacturers worldwide[6] - Its single-use and single-patient devices and components are utilized across a wide range of medical applications, including minimally invasive surgery, infection prevention, wound care, wearables, orthopedic soft goods, and orthopedic implants[6] Financial Performance Analysis This section provides a detailed analysis of UFP Technologies' financial performance, covering both GAAP and non-GAAP metrics for Q2 and YTD 2024, highlighting sales growth, profitability, and leverage post-acquisitions GAAP Financial Results UFP Technologies demonstrated strong GAAP financial performance in Q2 and YTD 2024, with notable increases in sales across both medical and non-medical markets, improved gross margins in Q2, and growth in operating and net income, despite an increase in SG&A expenses Sales Performance | Metric | Q2 2024 | Q2 2023 | YoY Change | YTD 2024 | YTD 2023 | YoY Change | | :---------------- | :------ | :------ | :--------- | :------- | :------- | :--------- | | Total Sales | $110.2M | $100.0M | +10.1% | $215.2M | $197.8M | +8.8% | | Medical Sales | $95.4M | N/A | +10.8% | $185.5M | N/A | +9.1% | | Non-Medical Sales | $14.8M | N/A | +6.3% | $29.7M | N/A | +6.9% | Profitability Metrics | Metric | Q2 2024 | Q2 2023 | YoY Change | YTD 2024 | YTD 2023 | YoY Change | | :---------------------- | :------ | :------ | :--------- | :------- | :------- | :--------- | | Gross Margin | 30.0% | 29.6% | +0.4 pp | 29.3% | 29.5% | -0.2 pp | | SG&A | $13.9M | $12.3M | +13.0% | $27.8M | $25.3M | +9.9% | | SG&A as % of Sales | 12.6% | 12.3% | +0.3 pp | 12.9% | 12.8% | +0.1 pp | | Operating Income | $18.0M | $17.0M | +5.9% | $33.9M | $29.9M | +13.4% | | Net Income | $13.6M | $11.9M | +14.3% | $26.2M | $21.6M | +21.3% | | Diluted EPS | $1.75 | $1.55 | +12.9% | $3.38 | $2.81 | +20.3% | Non-GAAP Financial Measures The company reported strong growth in key non-GAAP metrics, including adjusted operating income, adjusted net income, and adjusted EBITDA for both Q2 and YTD 2024, with a pro-forma leverage ratio of approximately 1.8X following recent acquisitions, indicating sufficient capacity under its credit facility Adjusted Operating Income | Metric | Q2 2024 | Q2 2023 | YoY Change | YTD 2024 | YTD 2023 | YoY Change | | :------------------------ | :------ | :------ | :--------- | :------- | :------- | :--------- | | Adjusted Operating Income | $19.1M | $17.3M | +10.3% | $35.3M | $33.0M | +6.8% | Adjusted Net Income | Metric | Q2 2024 | Q2 2023 | YoY Change | YTD 2024 | YTD 2023 | YoY Change | | :--------------- | :------ | :------ | :--------- | :------- | :------- | :--------- | | Adjusted Net Income | $14.4M | $12.1M | +19.0% | $27.3M | $24.0M | +13.8% | Adjusted EBITDA | Metric | Q2 2024 | Q2 2023 | YoY Change | YTD 2024 | YTD 2023 | YoY Change | | :-------------- | :------ | :------ | :--------- | :------- | :------- | :--------- | | Adjusted EBITDA | $23.9M | $21.4M | +11.7% | $44.6M | $40.8M | +9.2% | - Upon completion of the recent acquisitions and related borrowings, the pro-forma leverage ratio is approximately 1.8X, indicating sufficient capacity under the company's loan agreement[5] Strategic Developments: Acquisitions UFP Technologies recently completed three strategic acquisitions – Marble Medical, AJR Enterprises, and Welch Fluorocarbon – which are expected to collectively add $90 million in revenue and $20 million in EBITDA, enhancing the company's capabilities in key medical markets, bringing important synergies, and strengthening its position as a valuable partner to customers - UFP Technologies completed three acquisitions between June 24 and July 15: Marble Medical, AJR Enterprises, and Welch Fluorocarbon[2] - These acquisitions are expected to collectively add an estimated $90 million in revenue and $20 million in EBITDA[2] - Strategic benefits include Marble Medical's expertise in high-speed die cutting and medical adhesives, AJR Enterprises' leadership in patient-handling and specialty fabrics, and Welch Fluorocarbon's thin film molding for implantable medical devices, all contributing to important synergies and increased customer value[2][3] Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated condensed statements of income and balance sheets, providing a detailed overview of the company's financial position and performance for Q2 and YTD 2024 Consolidated Condensed Statements of Income The unaudited consolidated condensed statements of income show significant year-over-year growth in net sales and net income for both the three and six months ended June 30, 2024, compared to the same periods in 2023 Consolidated Condensed Statements of Income (in thousands) | Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | :--------------------------------- | :------ | :------ | :------- | :------- | | Net sales | $110,177 | $100,037 | $215,186 | $197,790 | | Cost of sales | $77,146 | $70,392 | $152,072 | $139,444 | | Gross profit | $33,031 | $29,645 | $63,114 | $58,346 | | SG&A | $13,900 | $12,299 | $27,812 | $25,306 | | Operating income | $17,951 | $17,042 | $33,876 | $29,882 | | Income before income taxes | $17,372 | $15,973 | $32,707 | $27,868 | | Income taxes | $3,820 | $4,090 | $6,462 | $6,246 | | Net income | $13,552 | $11,883 | $26,245 | $21,622 | Weighted Average Shares Outstanding | Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | :----------------------------------------- | :------ | :------ | :------- | :------- | | Weighted average common shares outstanding | 7,608 | 7,672 | 7,625 | 7,662 | | Weighted average diluted common shares outstanding | 7,689 | 7,753 | 7,690 | 7,756 | Consolidated Condensed Balance Sheets The balance sheet as of June 30, 2024, shows an increase in total assets and stockholders' equity compared to December 31, 2023, primarily driven by higher cash and cash equivalents and inventories, while total liabilities decreased Consolidated Condensed Balance Sheets (in thousands) | Asset/Liability/Equity | June 30, 2024 | December 31, 2023 | | :--------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $16,728 | $5,263 | | Receivables, net | $60,985 | $64,449 | | Inventories | $77,976 | $70,191 | | Total assets | $422,396 | $404,136 | | Total liabilities | $112,220 | $118,045 | | Total stockholders' equity | $310,176 | $286,091 | Non-GAAP Financial Information & Reconciliations This section provides detailed disclosures and reconciliations for non-GAAP financial measures, including Adjusted Operating Income, Adjusted Net Income, and Adjusted EBITDA, explaining their utility for management and investors Non-GAAP Financial Information Disclosure This section clarifies the use of non-GAAP financial measures such as Adjusted Operating Income, Adjusted Net Income, EBITDA, Adjusted EBITDA, and pro-forma leverage ratio, explaining that management uses them for decision-making and believes they offer a more complete understanding of the company's operations when viewed alongside GAAP results - Management considers Adjusted Operating Income, Adjusted Net Income, EBITDA, Adjusted EBITDA, and pro-forma leverage ratio as non-GAAP measures[11] - These non-GAAP measures are used to facilitate management's financial and operational decision-making, evaluate historical operating results, and provide a meaningful, consistent comparison of the company's performance[11] - The company emphasizes that these non-GAAP measures are supplemental to, and not a substitute for, financial information prepared in accordance with GAAP, and their definition may differ from those used by other companies[11] Adjusted Operating Income Reconciliation Provides a reconciliation of GAAP operating income to adjusted operating income, detailing adjustments for acquisition costs, changes in fair value of contingent consideration, and gain/loss on disposal of fixed assets for Q2 and YTD 2024 and 2023 Adjusted Operating Income Reconciliation (in thousands) | Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | :--------------------------------- | :------ | :------ | :------- | :------- | | Operating income (GAAP) | $17,951 | $17,042 | $33,876 | $29,882 | | Adjustments: | | | | | | Acquisition Costs | $943 | - | $943 | - | | Change in fair value of contingent consideration | $238 | $198 | $476 | $3,051 | | (Gain) loss on disposal of fixed assets | $(1) | $106 | $7 | $107 | | Adjusted operating income (Non-GAAP) | $19,131 | $17,346 | $35,302 | $33,040 | Adjusted Net Income and Diluted Common Share Outstanding Reconciliation Presents the reconciliation from GAAP net income to adjusted net income, including adjustments for acquisition costs, contingent consideration, and disposal of fixed assets (net of taxes), along with adjusted net income per diluted share Adjusted Net Income Reconciliation (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | :----------------------------------------------------------------- | :------ | :------ | :------- | :------- | | Net income (GAAP) | $13,552 | $11,883 | $26,245 | $21,622 | | Adjustments (net of taxes): | | | | | | Acquisition Costs | $701 | - | $701 | - | | Change in fair value of contingent consideration | $177 | $149 | $354 | $2,296 | | Loss on disposal of fixed assets | - | $80 | $5 | $81 | | Adjusted net income (Non-GAAP) | $14,430 | $12,112 | $27,305 | $23,999 | | Adjusted Net Income per diluted share outstanding (Non-GAAP) | $1.86 | $1.58 | $3.52 | $3.12 | | Weighted average diluted common shares outstanding | 7,753 | 7,690 | 7,756 | 7,689 | EBITDA Reconciliation Details the reconciliation of GAAP net income to EBITDA and adjusted EBITDA, incorporating adjustments for income tax, interest, depreciation, amortization, share-based compensation, acquisition costs, contingent consideration, and disposal of fixed assets EBITDA Reconciliation (in thousands) | Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | :--------------------------------- | :------ | :------ | :------- | :------- | | Net income (GAAP) | $13,552 | $11,883 | $26,245 | $21,622 | | Income tax expense | $3,820 | $4,090 | $6,462 | $6,246 | | Interest expense, net | $577 | $1,089 | $1,208 | $1,958 | | Depreciation | $1,934 | $1,731 | $3,833 | $3,402 | | Amortization of intangible assets | $1,098 | $1,099 | $2,198 | $2,205 | | EBITDA (Non-GAAP) | $20,981 | $19,892 | $39,946 | $35,433 | | Adjustments: | | | | | | Share based compensation | $1,736 | $1,197 | $3,249 | $2,253 | | Acquisition Costs | $943 | - | $943 | - | | Change in fair value of contingent consideration | $238 | $198 | $476 | $3,051 | | (Gain) loss on disposal of fixed assets | $(1) | $106 | - | $107 | | Adjusted EBITDA (Non-GAAP) | $23,897 | $21,393 | $44,621 | $40,844 | Forward-Looking Statements This section serves as a cautionary note regarding forward-looking statements, highlighting that such statements are based on assumptions and subject to various risks and uncertainties that could cause actual results to differ materially from expectations - Forward-looking statements relate to future events or the Company's future financial or operating performance and are identified by words such as 'may,' 'should,' 'expect,' 'intend,' 'will,' 'estimate,' 'anticipate,' 'believe,' 'predict,' or similar words[9] - Such statements are based upon assumptions and are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied[9] - Key risk factors include the Company's general ability to execute business plans, industry conditions (e.g., inflation, supply/demand fluctuations), indebtedness, delayed payments, customer concentration, and the ability to achieve anticipated benefits from acquisitions[9][10]