UFP Technologies, Inc. Q2 FY2025 earnings call

• UPF had a strong second quarter with revenue up 37%, adjusted operating income up 35%, and adjusted EPS up 27%. • Medical business grew 46%, robotic-assisted surgery business grew 7%, and multiple other markets like patient services, interventional/surgical, and wound care grew >48%. • Revenue from Intuitive Surgical and Stryker grew 10% and 567% respectively. • Advanced Components declined ~20% as resources are focused on MedTech opportunities. • AJR facility had labor turnover leading to margin impact: $1.2 million in Q2, estimated $2.5 million in Q3, and smaller in Q4. • Closed acquisitions of UNIPEC and Techno Plastics Industries (TPI). • Expansion plans in the Dominican Republic, with equipment in place in Santiago and a fifth building in La Romana. • Manufacturing for 7 robotic-assisted surgery (RAS) customers, with 12+ in development. • Progress on filling key positions, including a new VP GM of AJR and a senior leader in Ireland.

Revenue grew 37% with 5% organic growth. Adjusted operating income increased 35%, and adjusted EPS grew 27%. The medical business grew 46%, the robotic-assisted surgery business grew 7%. The Advanced Components business, a nonmedical part, declined approximately 20%. Revenue from Intuitive Surgical grew 10% and from Stryker grew 567%.

• Continue navigating labor turnover related inefficiencies at AJR. • Execute on new program launches and transfers to the Dominican Republic. • Continue evaluating and closing strategic acquisitions. • Anticipate Q3 to be the low point for AJR labor inefficiency impact, with Q4 impact being much smaller. • Acquisitions of UNIPEC and TPI are anticipated to be accretive in the first year.

• Labor turnover at the AJR facility impacting labor efficiency and revenue. • Tariff impact on raw materials, estimated approximately $9 million annually, with the impact passed through to customers. • Potential margin pressure in Q3 due to labor issues at AJR, with a lesser impact in Q4.

Q: Broader robotic surgery business opportunity and new products?

A: The robotic surgery market is a good fit for UPF's skills. There are 7 customers in some form of manufacturing phase and a dozen+ in development. Major players are expected to contribute meaningful revenue in the next 1-2 years, with smaller ones taking longer.

Q: Inorganic revenue trends?

A: Underperformance was related to AJR due to labor inefficiency, but the low point is behind, and the rest of the acquisitions are performing at or above expectations.

Q: AJR product transfer timeline?

A: The full transition is expected in the fourth quarter into the beginning of next year.

Q: Channel inventory at customers?

A: Inventory destocking is behind us, and there's a need to restock the AJR channel as soon as possible.

Q: Gross margin rebound?

A: There will be margin pressure in Q3, with a rebound in Q4.

Q: Drape production market share?

A: Share is steady at about 2/3 and will remain so for the rest of the year.

Q: M&A funnel?

A: Focus is on the injection molded space, looking for cultural, strategic, and economic fits. There are multiple deals in process.

Q: Margin movement from 2Q base?

A: Q3 margin is expected to be lower than Q2, with modeling around the low 28s.

Q: TPI synergy and accretion?

A: Internal use components will evolve over time, with some components being commodity in nature that could be used internally, but most are longer term due to qualification requirements.

Q: Stryker inventory drag?

A: There's a good relationship with Stryker, which has safety valves, and UPF will rebuild inventory in the fourth quarter to supply Stryker's needs.