Thanks for joining us. I'm Andrew Cooper. I cover the sort of med device outsource manufacturing space here at Raymond James, as well as diagnostics and life science tools. Happy to be joined by the UFP Technologies team today. We have CEO Jeff Bailly, who's gonna give us a little bit of a presentation before maybe a little bit of Q&A, and then the breakout. We also have Ron in the audience as well, who'll be there for the breakout. With that, I will pass it to Jeff, and take it away. Thank you.
Great. Thank you, Andrew, and thank you all for being here. Let me briefly call your attention to our forward-looking statement. UFP Technologies is a trusted contract development and manufacturing organization focused primarily on single-use and single-patient medical devices. We're headquartered in Newburyport, Mass. Revenues are approximately $600 million. We have over 5,000 employees across 21 manufacturing sites with 6 innovation centers. What we do is combine our design engineering capabilities, our materials expertise, and our precision manufacturing to help our customers either develop, improve, manufacture, or protect their products. This materials piece is an important part of our value proposition. Our engineers travel the world looking for new innovative materials, then bring them back and try to give early access to our customers. We partner with our key vendors in a meaningful way.
It usually ends up with us having either exclusive or semi-exclusive access to their materials. I'll give you an example. The world's leading manufacturer of cross-linked foams has given us exclusive access to 100% of their medical grades. The best reticulated urethane manufacturer in the world has given us access, either exclusive or semi-exclusive, to dozens of their grades of material. We have similar relationships with our key TPU suppliers and our key fabric suppliers. This is a little snapshot of our process. Our process begins with a customer intake meeting. We currently do business with 26 of the top 30 med device companies in the world. The few that we don't do business with is because they usually deal with a part of the body like ear or eye that we're not focused on.
These meetings are usually engineer to engineer. It begins with us getting an understanding of what they're trying to accomplish. We iterate different material options and different design options. We have in-house prototype capability in all of our innovation centers. The next step is typically tooling. Again, this is in-house for us. This helps us hold very close tolerances, as well as to respond very quickly to design changes. Next step very often is custom equipment. We build a lot of the equipment used to manufacture our products. This makes our products stickier. If you're gonna try to steal something from us, you'd have to build your own equipment. Quality systems, a lot of our products are critical to patient outcomes. Some go into the body during surgeries, so we design quality systems together with our customers. Sometimes we design and build the test equipment.
Some of it is 100% tested. Next on to validation and pilot manufacturing, and then finally into commercial production in one of our 21 facilities. This front end of our business, this product development business, is very important to our business model. If you dial back the clock 10 or 15 years, we used to give this away in exchange for hoping to do the manufacturing. Now it's an important revenue stream for us, and it's an important part of us vetting new opportunities. It's critical for a bunch of reasons. Number one, it's very high margin business for us. Number two, and maybe most important is with each project, we're getting more and more expertise that makes us more qualified to do the next one. We're in this virtuous cycle. We're getting more and more business.
We're building strong customer relationships because there's a lot of engineer-to-engineer work. There's a lot of co-development, co-inventing, a lot of high five moments between engineers. Finally, it feeds our factories. I think one of the easiest ways to understand our business is to go through a few examples of products. In the upper left, robotic drapes, this is our largest component of our business, about 28% or 29% of our business. We entered this business about 20 years ago with Intuitive Surgical just doing a single part they asked us to design. It was the interface between the robot and the surgical instrument. It was a specialty TPU part. In 2021, we forward integrated and bought one of the two drape manufacturers in the Dominican Republic certified to make these drapes.
After we bought them, we just kinda became a better mousetrap and started winning more and more business. Continuing on to the right, this is a very sophisticated part. This is used for stroke patients. It's a Revascularization device. If you have a blood clot or thrombus in your brain, this device is deployed via catheter all the way into your brain, and it can deploy and basically remove the blood clot, restoring blood flow like clearing a drain and instantly saving the patient's life. We've had patients come to our factory and want to shake the hand of everybody who worked on their device to thank them. This device was developed in our location. Actually, we didn't own them at the time. Advant, together with CERENOVUS, it ultimately became one of J&J's fastest-growing products.
It just shows some of the sophistication of the products that we can do. Continue across to the top right. This is an example of a customer who showed up with a concept. They wanted to design an IV port cleaner that was kind of like a coffee creamer. You'd peel off the top inside. They envisioned these foam fingers in an alcohol bath, and you could plunge the IV port into it. So we iterated a bunch of different designs. We ultimately built the equipment for them. Their product took off. A bunch of years later, they wanted redundant manufacturing in another location. They wanted to be El Paso, Texas. Fortunately, we had a factory there with both Class 7 and Class 8 clean rooms, so we were able to do that.
Many years later, we're still sole source on this program, and it's a rapidly growing program. Lower left, med surg beds. We're experts in TPU and impulse and RF welding, so a product like this is a natural fit for us. This customer is trying to get rid of thread in the mattress because thread can absorb blood and other pathogens. So we can form these materials together, and these actually have special air bladders in them that can inflate and turn the patient, so they're pretty sophisticated mattresses. In the lower bottom middle, this is an example I like to show because in the early days, UFP only did the purple foam part. We were considered foam experts. We bought the company that was the next stage in the value chain that was experts in RF and impulse welding.
Now we do the whole device. This is an example where our acquisition strategy makes us more valuable to customers. In the lower right, patient safety. We bought a company in mid-2024, AJR, that was the leader in safe patient handling. Picture having to move a heavy patient from, say, their hospital bed onto a surgical table or a transport stretcher. In the old days, they just kind of one, two, three. They've designed some products that are almost like an air hockey table. They have little teeny laser-cut holes, and you inflate this device, and it slides the patient over very safely. It saves backs of the caregivers, it saves the patients. These products are really taking off.
This is our second largest market now, also a double-digit grower for us. Here's a snapshot of our business today. The overall MedTech space is growing at 6%, but the outsourced CDMO is more like 10%. Our business is broken up into 55% devices, 17% sterile packaging, and 28% or 29% RAS. Robotic surgery, sorry. This shows the balance of our markets together with their %. You can see our fastest-growing market is also our largest market, which is great. Our second fastest-growing market is also our second market. We're lucky that our biggest markets are those that are growing fastest, and this shows all the way down. I'm not gonna read them 'cause I can't see it. Here's a snapshot of our robotic surgery and how acquisitions play into our strategy.
We determined about 20 years ago that this was a good fit and a good market for us. I mentioned we bought one company forward integrating to become more valuable to our customer, and we've done follow-on acquisitions as well. There's a lot of injection molded components in a robotic drape, and we as a company buy probably $13 million or more of injection molded parts. We've decided we wanna buy injection molders. We've already bought 2, and I think you'll see us buy more to try to get more and more sophistication. Specialty adhesives. You can see the little green labels. There's a lot of labels that are put on to help nurses apply the drape. We buy a lot of these things.
We bought one of the companies that supplies Intuitive Surgical, but the key is that we'd like to get better at this rotary technology and at specialty adhesives. I wanna review our growth strategy. Our growth strategy's been the same for about 20 years. It's an iterative strategy. It's a two-pronged growth strategy. The first prong is internal growth. We summarize this as marketing to our sweet spot. We look for those markets and those segments that are best fit with our skills, where we add the most value, and therefore can enjoy the highest margins. On the strategic acquisitions, it's also very customer-focused.
We follow a technology roadmap that's been developed together with our customers, we basically ask them the question, What can we do to become more valuable to you? They might say, Hey, if you could get to this geography, or if you could add this material or this capability. On the internal growth strategy, we're offering complimentary services to our customers. We already have the big customers. We're trying to sell them more and more. The key is that it's customer-funded development. Almost everything we manufacture we first designed, and the customer pays for that design. It's primarily single use and single patient, so a lot of disposable. Think of an inexpensive product that is really critical if it fails.
In the case of robotic surgery, no procedure can take place without the drape. We're the dominant player in this literally globally. On the acquisition side, again, following a technology roadmap, I could give you some examples. Like, geography was a big deal for a lot of our recent acquisitions. You know, we were shipping $10+ million to Ireland. Our key customer said, You have to get there. As a matter of fact, if you don't get there, you can't be our global partner. We checked that box two different ways in Ireland. Same with the Dominican Republic.
You know, we are told by our customers, You have to get to low-cost country because when our products get to a certain stage in the life cycle, we have to take costs out. When we were losing business over time, it was almost always to the Dominican Republic, almost always to the same exact competitor that was just trying to steal our business. We used to think of our business as like a bucket. We were filling in new business, but we were leaking it out to low-cost countries. When you check the low-cost country box, which we did, we're in Costa Rica, two different locations in the Dominican Republic, and in Mexico, it was very helpful to our strategy. Same with materials. There was one example of material that we did not have.
We consider ourselves materials neutral, that we can offer all the materials and not try to slam you into one thing like the Cadillac dealer not offering you the other products. You could not get this material. There was only 10 or 12 companies that could, so we interviewed them. About half of them met our cultural fit. We bought one, and then within the next 15 months, we bought three or four more. We went from not having access to the material at all to being the largest user of the material in North America. Typically, with a material, we become very dominant. With our top materials, we're typically the vendor's largest customer. Cultural fit, I just wanna mention this. We've done, I think, 22 acquisitions of late. We vet for culture a lot. First, we vet for strategy.
Is it worth our time? We vet for culture. Is it a good fit? Similar view of the world, how you treat people, ethics, how you treat customers, et cetera. If you pass our cultural fit test, we go on and do a financial review. Ron would screen them to make sure that, you know, this deal is gonna exceed our cost of capital as well as meeting our strategic objectives. Vetting for culture has helped us a lot. We describe our process as integration light. We've started buying companies that are better than us in a specific discipline and then letting them do their job as opposed to coming in and trying to cut a bunch of costs. We experienced a tremendous amount of growth synergies. We're usually buying a company with growth synergies in mind.
I can give you the example of when we bought DAS Medical in 2021, their revenue was between $40 million-$50 million. This year, it'll be $150 million. When we bought AJR in 2024, the revenue was $75 million. This year, it'll probably be $130 million or more. Customers instantly get relaxed when they're a part of a bigger company like ours. In both of those cases, this is a sweet spot for us in acquisitions, the company had single customer concentration, which scares away a lot of buyers. Like a lot of the private equity people do not wanna buy these customer concentration plays, and we do. We have the ability to talk to the customers because we do business with them and find out, Hey, is this a good one? Do you like these guys?
Is their business gonna grow? We get a lot of insights from our customers about whether we should or should not do acquisitions. Here's a little snapshot of our recent history and shows some of the deals that we did. The thing that's relevant here is, I mean, we aspire as a company to double every five years. You can see in the last four years, we tripled essentially in revenue. With respect to our medical sales, our medical sales went up by 4x in the last four years. At the same time, bottom line figures also went up by like 400%. We've had a nice recent run of executing our plan, successfully completing acquisitions and successfully growing internally at a robust rate.
Snapshot of our facilities in yellow shows some of our most recent acquisitions, but you can see we have a nice distribution of strategic locations, both inside the US and outside of the US. There's one area that's strategically relevant that we're not there yet, and that's APAC. One of our big customers has said, Hey, it's important for us for you to get there. We are investigating that together with them. They will invest in capital, we will invest in space and people, and we will be in that geography for that customer within the next 12-18 months. Why invest? I'm sure that's a reason a lot of you are here to look to see if there's companies that fit your objectives. I think there's a lot of very compelling reasons why UFP is an excellent investment.
The first one is we have significant growth opportunities. The next is that once we earn a piece of business, we have significant barriers to entry. We kinda learned this the hard way. We were always a very innovative company, but we weren't always able to keep things. Now we work hard to bulletproof opportunities. We have strong customer relationships, experienced management team that's been together a long time, a proven growth strategy, and attractive financial metrics. On the growth opportunity side, there's a lot of macro trends that are favoring us, like aging population, tremendous focus on infection prevention in hospitals right now to reduce Hospital-acquired infections, which are a high cause of death. A big focus on improving patient outcomes, a big focus on taking costs out, all of which plays into our development model.
Also on the growth side, we have also targeted sub-markets that are rapidly growing. We're growing faster than the whole market with things like robotic surgery that are in the mid-teens or safe patient handling that's also double digits. Under barriers to entry, we have a lot. Our engineers is one of. Most of them are homegrown. We have an intern program. We probably get 12 or 15 people through every year. We hire the 2 or 3 best. We've got over 100 of these engineers doing design development work for our customers. Very hard to replicate them because they're homegrown. The materials access, I touched on that. Exclusive access to material is very important to us. If a customer comes to us and says, Hey, we have a mandate of two sources.
We need you to help somebody else get the materials, they'd have to buy the raw materials from us because we typically have the exclusive. Custom equipment, another barrier to entry. IPR quality systems. Our quality and regulatory system is generally more sophisticated than our smaller competitors. It's also a barrier to entry and clearly our scale. Our growth strategy, I mentioned this, we've had the exact same growth strategy for about 20 years. It's iterative, almost like AI, and it always was for us. We profile our business on like a bell curve every year. The most profitable end of the bell curve becomes a roadmap for our sales and marketing team. We dissect it, find out the attributes, and that's where they go. The least profitable becomes the roadmap for our manufacturing engineers. Can we change the material?
Can we change the design? What can we do? They work on that. If they're unsuccessful at getting the margins we want, we just raise the price. It either sticks or it doesn't, and we don't carry the weight. The book of business is always moving in the right direction. We've evolved as a company over time into different markets that are the best fit, and we've kinda landed on MedTech, and within MedTech, these specific markets, but it's an iterative strategy that continually self-improves. Financial targets, I'll walk you through our financial targets. Revenue growth, 12%-18%. We look for this half internal, half through acquisition. I told you our. You know, these are conservative targets for us.
We actually aspire to much more than that. Historically, as I mentioned, we have done quite a bit better than that. Gross margins, 28%-31%, and adjusted operating margins, 17%-20%. This is a little snapshot of our revenue history. You can see a nice smooth plus on the revenue line. Gross profit, in general, is a smooth plus. This year, we had a very specific thing happen with one of our acquisitions. We bought a company, and then when we went to onboard the employees, more than half of the direct floor labor force was not legal to work in the U.S. We've had to respond to this. We've publicly disclosed this. The issue is largely behind us, but it did impact our gross margins.
If you subtract our publicly disclosed number on that, this year's gross margin was, I think, 29.3%, so you can see this continued smooth plus. Generally, our operating margins is even steeper smooth plus. Again, a step back due to that exact issue, but in both cases, still in the target range despite this one-time not pleasant issue that we had to deal with. This is our last graph. This was asked by a shareholder a while ago, so you have to tell, your story's a 20-plus year story, not a one or two or 3 year story. In fact, you've seen a step back in the stock.
We had a short report or two written a while back that sort of suggested that we might lose one of our biggest customers, and they had a thesis that was rife with misinformation. That's all kind of just been debunked. Just a few days ago we announced an extension expansion of that contract. I think that the thought of us parting ways with this company is now sort of in the rear view mirror, so may in fact be a great buying opportunity. I will pause there and take any questions that you guys may have.
Happy to open it to the audience, so raise your hand if there's anything you wanna ask. Maybe I'll kick it off, and then I can pass a mic to somebody else.
Sure
... while you answer the first one. Maybe just give folks a little bit of kind of how you're viewing the extension you just alluded to with that largest customer in terms of, you know, what it does to answer that question and how far out it goes and kind of the structure of raising some minimums, at least to the degree you can. I know they don't love you spending too much time.
Sure
... on too many details, but...
Yeah
... I've gotta ask.
Yeah, happy to do it. The contract's great news. I mean, we knew it was coming. We had a four-year deal with them before. They don't like them to get anywhere near the end. It's very important for them that we're under contract with them, that they need surety of supply. It's also very important for them to give us this commitment so we can lease new buildings, which we are doing, buy new equipment. Under this particular deal, they are actually the ones investing in the capital. Our responsibility is to lease buildings, hire people, et cetera. You know, we have sort of publicly disclosed that our capacity is $9 million with our current capacity. We're obviously building a building, putting in new lines, so the expectation is towards the end of this contract it will be something higher than that.
The minimums have gone up materially, you know, very important to them that we not disclose that. Our customers don't want anybody to be able to predict their volumes based on something we say. Not only did it extend in years, it extended in volume, and they added a new program to it. It's, it's a great deal. We're super happy about it.
Perfect. Again, raise your hand if there's anything you wanna ask, but in the absence of that, I'll ask another, which is just I think back to my follow-up with Ron after the earnings call, and I can literally see him on the Zoom shaking his head, kind of chuckling, I don't know why, and getting fired up about it. We don't talk about half of your business very much. We talk about the two biggest customers a heck of a lot.
Yeah
... 'cause that's what investors ask us. What would you highlight in, you know, the other half of medical that, again, we really don't spend a lot of time on that people are maybe, you know, most under-appreciating? I know there's a new program in external catheter I think you were excited about...
Yeah
... on the earnings call. Maybe just give some flavor for the rest of the makeup of that and some of the pieces that are growing fastest or that are most exciting to you right now.
Yeah. We do a lot of Sterile packaging, and we're winning a lot of programs. The problem with these programs that we win, they tend to be $1 million-$3 million, they don't make the news, but they're constantly coming, and that part of our business is growing rapidly, including internationally. One of the things we've been spending a lot of time on in the last few years is infection prevention, very specifically on external catheters. There's a lot of Hospital-acquired UTIs that can end with sepsis and people in fact dying, a lot of the major players are working on these things. Our skills, if you think about what an external catheter might look like, it needs an outer shell, which is typically either foam or film.
It needs an inner foam, a reticulated foam that can absorb raw materials. It needs a tube to extract those materials. It needs to be sealed. Those are all things we're expert in. Literally all of these people working on these devices have come to us. We did one recently where the customer wanted us to do the entire thing in a bag, in a box, ready to go to the hospitals. Three different of our plants collaborated on this, the foam expert with the RF welding expert with the film expert. We just launched this in the DR, actually in our robotic surgery platform. It's just kicking off now, but they're already talking about expanding their capacity. It's a multimillion-dollar program which we did cradle to grave all the way to the patient, which is exciting.
Infection prevention in general, there's a lot of it in our labs right now.
Maybe just as follow-on to that, and you may not have a number here off the top of your head, but how much of what you do is that sort of cradle to grave where, you know, the full, the full product versus we're a small component that goes to somebody else that gets put into something else?
Yeah. Good question. In the old days it was all components, and we're aspiring to do more and more of the whole. I'd say it's still a small % where we do the whole, so that's all opportunity for us to do more for our customers. The amount that we do for them is definitely increasing. That, that example, the KCI Negative Pressure Wound Therapy would be a good one. We did something for $0.50, and then it became $5.00. Same with the drape. We did something for a small amount of money, and now it's a large amount of money. We still do more and more for our customers.
Yeah. I'll ask one now maybe about AJR, but sort of not about AJR. I wanna generalize it a little bit just from the perspective of, you know, that playbook of, hey, you're doing something for a customer, they wanna make sure you're doing it well, and as volumes ramp, as, you know, the market matures, maybe they say, Hey, I need to change my cost profile there.
Yep.
That willingness to take that on, and I think you touched on it a little bit in the presentation, you know, how comfortable are you when the customer says, Hey, let's make a move, and how frequent is that when you think about, you know, a pretty substantial U.S. footprint that you have?
Yep
... a growing international one as well?
Yep. In this particular case, the customer had already entrusted us to move a program to Mexico for them, so we already had a history of successfully doing this for them. When we bought AJR, they were just messing around with the very first program, and this customer said to us, Oh my God, if you buy them, this would be awesome. You know, I mean, their supplier was excellent at what they did, but they just weren't grown up and sophisticated enough to do this. They were relieved, and as soon as we bought them, instantly they gave us new business. They instantly signed this contract which would allow us to move 3 programs. Again, the reason you need a contract is we need guaranteed volume.
We actually require exclusivity in a lot of these. 'Cause we're gonna sign leases, hire people, et cetera. Now they write checks too. They write multimillion-dollar checks. It's a co-investment, but I think we're very good at this. It's part of our core competency now.
Just thinking about the volume trends you've seen in some of the major programs, you're talking about the sixth facility, I think, in the robotic surgery campus.
Yeah
or mostly robotic surgery campus.
Yeah.
Is it a fifth in the?
Third in Santiago.
... or third, I'm sorry.
We just opened up the third.
In Santiago.
Yeah. Yeah.
How tight are you on capacity? How much room is there if a customer calls and says, Hey, we're selling out of this thing and we need more of it yesterday?
Yeah.
What's the flexibility?
In general, we don't run very close to capacity. Actually in these two markets that you just mentioned, we are very close to capacity. The reason with the robotic surgery is 'cause it's customer funded and they were sort of prescriptive about how much they were willing to spend. We have about 10% more capacity than they need. That's why they're signing this contract and doing more. With respect to Santiago, they're as fast as you can hire people and ramp up. We have lots of equipment arriving in the DR every single day and we're, you know, we are. We went from one building to two buildings to three buildings in, like, a three-year period.
What's your perfect world for kinda capacity utilization in a given program?
Because we're capital light, I mean, I like to have lots of flexibility to ramp up. If we were in at 50 or 60% of capacity, that would feel good to me.
Maybe just thinking about that, safe patient handling, or surfaces and support, whatever we wanna call it, end market, what are some of the key drivers that... You know, I know you probably listen a lot to the customer and what they think and what they hear...
Sure
... and what they see, but what are some of those key drivers to that market that keep you confident that it's a, you know, double-digit end market for some time in the future?
I think that they have a lot of injuries. I mean, Ron mentioned this earlier that the... You tell your quote. Was it 4x?
Yeah, the OSHA incident rate in hospitals is four times what it is in manufacturing. Huh.
Caregivers getting hurt is 4 times as typical in a hospital. This, you know, you can imagine the back injuries moving a patient, you can imagine the risk of dropping somebody on the floor, and these products have evolved very quickly from slip sheets with a bunch of handles so that you had a better chance of not dropping somebody to these air-assisted. A lot of the more sophisticated products are air assist now.
Great. We've got just a couple minutes. Maybe I'll just pass it back to you and give a little flavor of what you wanna leave investors with or what you think is most underappreciated in the story today, and then we'll head down to the breakout after that.
Yeah, great. Thank you, Andrew. I think that we're at a point in our evolution that we've never had a brighter future. It's mostly because we've locked in these key contracts with major customers, we've correspondingly locked in the vendors, we have checked this low-cost country box. We've done it successfully. We've sort of plugged the leak in losing business. We've opened up opportunities. We've won two big transfer programs since we showed up. I think, you know, we got rid of some of the negative, we added more of the positive. We're just in a position to grow. I think our new leader, who's been with us for 25 years, was part of developing the strategy, is part of executing the strategy. It's fresh legs, a enthusiastic guy who's been so excited.
He's waited a long time for this chance, I can tell you. We've been grooming him for, like, six years. He's like, Come on, give me a chance. He's fired up and ready to go. The strategy has proven out. We've been performing ahead of our targets. We expect to continue to outperform over the next 5-10 years.
Great. We'll stop there and head down to Amarante One for the breakout. Thank you so much.
Thanks very much.