Good morning, everyone. Jeff Elliott with Three Part Advisors. Thank you all for coming. Our next presenting company is UFP Technologies, trades under the ticker UFPT, based in Newburyport, Massachusetts. With us here today from the company, we have Mitch Rock, CEO, and Ron Lataille, CFO. UFPT is a Three Part Advisors client. If anyone would like a follow-up meeting or a call, please reach out to me directly. Happy to help set that up. With that, I'll just turn it over to Mitch All right.
Thank you, Jeff. Good morning and welcome. Thank you for joining us. I am Mitch Rock. I'm the President and CEO at UFP, and I'm joined by Ron Lataille, our CFO. We appreciate the opportunity to spend some time with you today and share why we believe UFP is uniquely positioned to continue creating value through a combination of organic growth and disciplined acquisitions. Take a look at this picture. It's a surgical suite. A patient on the table, a surgeon focused on the procedure, robotic arms draped with sterile barriers. Somewhere in that room, not in the headlines, not on the device label, is UFP. We made the drape over the robot. We made the foam to prep the surgical incision. We made parts for the wound dressing and the packaging that kept the implant sterile from our factory to that table.
We don't make the devices you've heard of. We help make them work. Forward-looking statement. You guys all know this. You can read it on your own time. Investment overview, kind of high level, a few things about UFP. We are a contract development manufacturing organization. The acronym's a CDMO. We're focused on medical devices, sterile packaging, and some other highly engineered custom products. Last year's revenue was around $600 million. The market cap's about $2.5 billion. We operate in the U.S., Puerto Rico, Ireland, Mexico, Costa Rica, and the Dominican Republic. We have over 5,000 team members. What you should take away from these numbers is scale, but plenty of room to grow. Geographic reach where our customers need us, and four things that define the business. We're in growing segments. We work with blue-chip customers.
The products we make have long life cycles, 10, 15, 20 years, and the switching costs to move away from those are high. Those four together create a compelling opportunity. We do have an attractive market opportunity. How should you think about the opportunity, the medical device market, the CDMO sector, and then UFP? Start with this. The global device market is about a half a trillion dollars. It's growing at 6.5%. It's made up of 15 broad segments and probably 75 sub-segments. The tailwinds are demographic, aging populations, people living longer, and the human instinct to fix everything that goes wrong with us. There is serial innovation to get better patient outcomes and make us all healthier. Innovation comes with risk.
We layer on regulation, the FDA, a CE mark, and then parallel quality structures inside of every one of our customers. This is a risk-averse industry. Even a small change on a device can take forever if it is allowed at all. From an investment perspective, we love this dynamic. Demand is growing, outcomes need to improve, and change is hard. That is where outsourcing comes in. Device companies want to put their resources into innovation and commercialization, not making widgets. The outsource spend in the market is about $100 billion, and that is growing at about 10%. UFP has less than 1% share. Think of us as the picks and shovels for the medical device industry. We do not pick the winners and losers.
At the device level, we sell engineering, special materials, and manufacturing to those companies trying to win, and that gives our investors broad, diversified exposure to med tech without single product risk. When the industry innovates, we participate. When a segment grows, we grow with it. We believe this creates a compelling long-term opportunity for disciplined operators like UFP. This is actually what we do. We are a development manufacturing partner that are enabling better patient outcomes. Here is how the business works. We serve three kinds of customers broadly. Large global OEMs, you have heard of them all, niche device makers, maybe they have a single product, and then well-funded startups. We engage with them across three phases. Early development, so this is design, prototyping, material selection, and then scale and optimize. We launch the product, we drive innovation in and then we take costs out.
Then full production. This is long-term manufacturing revenue with attractive economics. The key idea is we get in early, we earn the program, we ride with it for the life of the device. That is typically a decade or more, and all of it is supported by a global manufacturing platform. Six global locations on the slide are not by accident. Our customers are global, and over the last three or four decades, the global device market has made meaningful investments in these locations. We sit close to them in the right geographies with the right capabilities. Let us go back to this surgical suite. Look at everything in the picture. Again, robotic drapes, implants, wound dressings, access ports, patient beds and services, pacemakers. There are six key market segments shown here. UFP has content in all of them.
These are leading companies with leading products, devices that made it through years of design, validation, regulatory review. They use our foams, films, and fabrics, and other plastics because those materials help get a better patient outcome. We are embedded in the design, qualified into the program, and assuming we do our job, we stay with it for the life of the device. Almost everything you see here is single use. Next time you are in a hospital, look around. Nearly every device is in some kind of a sterile barrier. Usually, it gets thrown away after use. Why? Infection risk. This is one of the driving trends. Hospital-acquired infections remain a significant healthcare challenge, which continues to drive innovation through the continuum of care. There is lots of innovation to address, and UFP is in the right spot. Let us talk about differentiation and competitive advantage.
Three things make us different. One, we design in early. Our lab model gives customers access to engineering and materials, and process expertise at the front end of the design process when they're still figuring out what the device should be. That's when influence is the highest, and that's when we earn the program. Two, we scale and optimize. Once a product launches, we commit to taking cost out for our customer year after year. That's the deal, and we honor it. The work we do to get there, the process engineering, the automation, the materials, global footprint, is what scales the platform. As the platform scales, operating income grows. That's the model. Three, durable relationships. These programs last 10, 15, 20 years. The switching costs are significant. Qualifications, validations, regulatory filings. Once we're in, we tend to stay in.
Another advantage that often gets overlooked is our supplier network. We bring suppliers into growth opportunities, and in return, they often provide preferred access, differentiated materials, cost advantages that benefit both UFP and our customers. A win-win that compounds. We've talked about segments. Right now, UFP has six segments where we have meaningful exposure. This evolves. Historically, we've grown faster than the markets we serve because we continue to invest in capabilities that make us more valuable to our customers. In each one, similar pattern, market-leading clients with market-leading products, and UFP's technology, usually materials, are embedded to help make those products work. Robotic-assisted surgery, it's arguably one of the fastest-growing categories in med tech. Patient beds and handling is protecting both the patient and healthcare worker from injury. The cardiovascular space, we have broad exposure. Procedures continue to shift from open to minimally invasive.
Infection control, we talked about hospital-acquired infections. Problem is not going away. Orthopedics and spine is kind of same demographics. More procedures, more implants, more active lifestyles. Wound care, we're embedded with market leaders. Underneath that, it's important, we have additional exposure. Almost think of it like the bullpen. I said earlier that there's 15 segments, 75 sub-segments. We have exposure to endoscopy, imaging, ophthalmology, renal, drug delivery, aesthetics, in vitro diagnostics, and the breadth really does matter. So does the flexibility. Our model lets us extend into new customers, new segments, new technologies as the market evolves. That's how we keep finding the next program, the next customer, and the next company to join our campaign. Time-tested strategy. Our strategy to win, it's very straightforward. It's organic growth plus customer-centric M&A. Targeting a blended annual growth rate of 12%-18%.
On the organic side, we innovate and grow. Keep deploying our materials technologies into faster-growing segments. Keep converting early development partnerships into long-term manufacturing programs. Keep using our scale to grow with our customers and take cost out as we go. On the M&A side, we onboard acquired companies into a decentralized operating model. We use M&A to add segments, add customers, add complementary technologies. We use it to expand geography and add operating talent. The companies on the next slide, DAS Medical, AJR, AQF Medical, Marble Medical, Contech Medical, Dielectrics, Advant Medical, Welch Fluorocarbon, Techno Plastics Industries, and UNIPEC, every one of them was customer-centric, none were financial only, and every one of them advanced our strategy. We have proven financial performance. The track record speaks for itself. Revenue grew more than threefold, margins expanded significantly, and we transformed UFP from a diversified industrial company into a focused med tech platform.
All those logos I just talked about, that's the M&A track record. Each one of those added something specific, and each one is in the platform today, and that's how we've compounded. Our financial framework. A note on the framing. We don't give guidance. We provide three to five-year targets, revenue growth of 12%-18%, gross margins of 28%-31%, adjusted operating margins of 17%-20%. Supporting those targets is disciplined capital allocation. We invest where we have technology and segment advantage. We make acquisitions that fit the playbook, and we manage leverage with discipline. We have a very experienced management team. I think our team is great. It gets me excited, the team. When I look across this, you see three things. Long-tenured UFP leaders, experienced public company executives, and proven operators who've joined through acquisitions.
That combination gives us deep institutional knowledge, fresh perspectives, and a pipeline of leadership talent that continues to strengthen the platform. Ron, our CFO, we've worked together for nearly three decades. Ryan Stafford recently joined the company as General Counsel and Head of HR after a great run at another public company. Jason Holt came through ITW and has been with us for eight years. Marcelo, Daniel, and Bart all joined us through acquisitions, AJR, DAS, and Dielectrics, respectively. They're important parts of our platform today. Jeff Masters has 16 years with UFP. This is a powerful combination of UFPers, professionals from the outside making us better, and leaders from companies that have joined our platform. There's another layer of leaders that are doing an awesome job for us. Why invest now?
We call this a platform built to compound for four reasons. One, it's a large, growing, fragmented market. Half a trillion dollar plus device market, $100 billion of outsourced spend, and UFP has less than 1% share. There's plenty of runway. Two, differentiated technologies from our operating companies that are embedded with our customers. Once we are in the design, we tend to stay there. Three, better patient outcomes drive durable growth. These two are not separate things. When we help a customer's device work better, we earn the right to be on the next one. Four, an experienced team with an operating playbook and capital discipline. Put it all together and you have a business with recurring revenue characteristics, high switching costs, disciplined capital allocation, and a long runway for growth. Let's take us back to that surgical suite for a second.
Every device in that room has a story behind it. Engineers, suppliers, a manufacturing partner. UFP is in that story more often than people realize. We're getting involved earlier, becoming more valuable to our customers, and staying with programs longer. That's how we create value for our customers, better outcomes for patients, and long-term returns for our shareholders. Thank you, and I'll be happy to take questions.
Your earnings are up nicely. You are going to take cash flows a little bit towards the negative side. It looks like inventories and receivables are working against you. Is that intentional, at least on the inventory increase?
Want to take that one?
Yes, it is. Our inventory, we do not build inventory speculatively, so it is inventory growth, specifically finished goods, it is because we have orders to support them. So it is a great indicator of future results.
Do you see inventories working lower going forward?
Typically, it's a little bit seasonal, so Q4, typically, inventories come down. We shut down manufacturing in the Dominican Republic the last two weeks of December, so we build inventory during the year to support that so we don't interrupt the supply chain to our customers. So Q3 should be the same level as Q2-ish, and then you'll see it come down in Q4.
How does the M&A pipeline look?
The question is, how's the M&A pipeline look? On the last call, we talked about 5- 10 opportunities that we're looking at. It's robust. We're excited about it. So there are 5- 0 opportunities that are all ranged from $5 million- $30 million of EBITDA that we're actively looking at.
Are you going to keep the operations in Dominican Republic, or are you going to bring it back to USA?
The question.
It's not a political question, just curious.
The question is operations in the Dominican Republic. We're investing in the Dominican Republic and growing. We have two independent businesses there, DAS and AJR, and both we're investing in, and both are growing.
With respect to the $100 million addressable market, how fragmented is that market? Less than 1%?
Say it again, the last part.
It is extremely fragmented. Thousands of companies, and there are not many companies at our size that are pure-play med device CDMOs.
The real question is, has any impact on the homes and cost of itself?
De minimis. That's a wrap?
Yeah.
Okay. Thank you, guys. Appreciate it.