10-Q 1 ufpt20220930_10q.htm FORM 10-Q ufpt20220930_10q.htm
0000914156 UFP TECHNOLOGIES INC false --12-31 Q3 2022 0.01 0.01 1,000,000 1,000,000 0 0 0.01 0.01 20,000,000 20,000,000 7,608,164 7,578,605 7,564,645 7,535,086 29,559 29,559 15.6 19.0 10 375 3 5 0 0 9,876 10,716 0.25 Certain amounts for the three and nine months ended September 30, 2021, were reclassified between markets to conform to the current period presentation. 00009141562022-01-012022-09-30 xbrli:shares 00009141562022-11-01 iso4217:USD 00009141562022-09-30 00009141562021-12-31 iso4217:USDxbrli:shares 00009141562022-07-012022-09-30 00009141562021-07-012021-09-30 00009141562021-01-012021-09-30 0000914156ufpt:CommonStockOutstandingMember2021-12-31 0000914156us-gaap:AdditionalPaidInCapitalMember2021-12-31 0000914156us-gaap:RetainedEarningsMember2021-12-31 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-31 0000914156us-gaap:TreasuryStockMember2021-12-31 0000914156ufpt:CommonStockOutstandingMember2022-01-012022-03-31 0000914156us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-31 0000914156us-gaap:RetainedEarningsMember2022-01-012022-03-31 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-31 0000914156us-gaap:TreasuryStockMember2022-01-012022-03-31 00009141562022-01-012022-03-31 0000914156ufpt:CommonStockOutstandingMember2022-03-31 0000914156us-gaap:AdditionalPaidInCapitalMember2022-03-31 0000914156us-gaap:RetainedEarningsMember2022-03-31 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-31 0000914156us-gaap:TreasuryStockMember2022-03-31 00009141562022-03-31 0000914156ufpt:CommonStockOutstandingMember2022-04-012022-06-30 0000914156us-gaap:AdditionalPaidInCapitalMember2022-04-012022-06-30 0000914156us-gaap:RetainedEarningsMember2022-04-012022-06-30 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-04-012022-06-30 0000914156us-gaap:TreasuryStockMember2022-04-012022-06-30 00009141562022-04-012022-06-30 0000914156ufpt:CommonStockOutstandingMember2022-06-30 0000914156us-gaap:AdditionalPaidInCapitalMember2022-06-30 0000914156us-gaap:RetainedEarningsMember2022-06-30 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-30 0000914156us-gaap:TreasuryStockMember2022-06-30 00009141562022-06-30 0000914156ufpt:CommonStockOutstandingMember2022-07-012022-09-30 0000914156us-gaap:AdditionalPaidInCapitalMember2022-07-012022-09-30 0000914156us-gaap:RetainedEarningsMember2022-07-012022-09-30 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-07-012022-09-30 0000914156us-gaap:TreasuryStockMember2022-07-012022-09-30 0000914156ufpt:CommonStockOutstandingMember2022-09-30 0000914156us-gaap:AdditionalPaidInCapitalMember2022-09-30 0000914156us-gaap:RetainedEarningsMember2022-09-30 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-09-30 0000914156us-gaap:TreasuryStockMember2022-09-30 0000914156ufpt:CommonStockOutstandingMember2020-12-31 0000914156us-gaap:AdditionalPaidInCapitalMember2020-12-31 0000914156us-gaap:RetainedEarningsMember2020-12-31 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-31 0000914156us-gaap:TreasuryStockMember2020-12-31 00009141562020-12-31 0000914156ufpt:CommonStockOutstandingMember2021-01-012021-03-31 0000914156us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-31 0000914156us-gaap:RetainedEarningsMember2021-01-012021-03-31 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-31 0000914156us-gaap:TreasuryStockMember2021-01-012021-03-31 00009141562021-01-012021-03-31 0000914156ufpt:CommonStockOutstandingMember2021-03-31 0000914156us-gaap:AdditionalPaidInCapitalMember2021-03-31 0000914156us-gaap:RetainedEarningsMember2021-03-31 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-31 0000914156us-gaap:TreasuryStockMember2021-03-31 00009141562021-03-31 0000914156ufpt:CommonStockOutstandingMember2021-04-012021-06-30 0000914156us-gaap:AdditionalPaidInCapitalMember2021-04-012021-06-30 0000914156us-gaap:RetainedEarningsMember2021-04-012021-06-30 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-012021-06-30 0000914156us-gaap:TreasuryStockMember2021-04-012021-06-30 00009141562021-04-012021-06-30 0000914156ufpt:CommonStockOutstandingMember2021-06-30 0000914156us-gaap:AdditionalPaidInCapitalMember2021-06-30 0000914156us-gaap:RetainedEarningsMember2021-06-30 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-30 0000914156us-gaap:TreasuryStockMember2021-06-30 00009141562021-06-30 0000914156ufpt:CommonStockOutstandingMember2021-07-012021-09-30 0000914156us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-30 0000914156us-gaap:RetainedEarningsMember2021-07-012021-09-30 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-012021-09-30 0000914156us-gaap:TreasuryStockMember2021-07-012021-09-30 0000914156ufpt:CommonStockOutstandingMember2021-09-30 0000914156us-gaap:AdditionalPaidInCapitalMember2021-09-30 0000914156us-gaap:RetainedEarningsMember2021-09-30 0000914156us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-30 0000914156us-gaap:TreasuryStockMember2021-09-30 00009141562021-09-30 0000914156ufpt:AdvantMedicalMember2022-01-012022-09-30 0000914156ufpt:AdvantMedicalMember2021-01-012021-09-30 0000914156ufpt:DasMedicalMember2022-01-012022-09-30 0000914156ufpt:DasMedicalMember2021-01-012021-09-30 0000914156ufpt:MoldedFiberBusinessMFTAndRelatedRealEstateInIowaMember2022-07-26 0000914156ufpt:MoldedFiberBusinessMFTAndRelatedRealEstateInIowaMemberus-gaap:ScenarioAdjustmentMember2022-07-26 0000914156ufpt:MoldedFiberBusinessMFTAndRelatedRealEstateInIowaMember2022-09-30 0000914156ufpt:MoldedFiberBusinessMFTAndRelatedRealEstateInIowaMember2022-01-012022-09-30 0000914156ufpt:MoldedFiberBusinessMFTAndRelatedRealEstateInIowaMember2022-07-012022-09-30 xbrli:pure 0000914156ufpt:AdvantMedicalMember2022-03-16 iso4217:EUR 0000914156ufpt:AdvantMedicalMember2022-03-162022-03-16 0000914156ufpt:AdvantMedicalMember2022-03-172022-03-17 0000914156ufpt:AdvantMedicalMember2022-03-17 0000914156ufpt:AdvantMedicalMemberufpt:CustomerContractsAndRelationshipsMember2022-03-17 0000914156ufpt:AdvantMedicalMemberus-gaap:IntellectualPropertyMember2022-03-17 0000914156ufpt:AdvantMedicalMemberus-gaap:NoncompeteAgreementsMember2022-03-17 0000914156ufpt:AdvantMedicalMember2021-01-012022-09-30 0000914156ufpt:AdvantMedicalMember2021-01-012021-12-31 0000914156ufpt:AdvantMedicalMember2022-07-012022-09-30 0000914156ufpt:DasMedicalMember2021-12-22 0000914156ufpt:DasMedicalMember2021-12-222021-12-22 0000914156ufpt:DasMedicalMemberufpt:GoodwillAgreementMember2021-12-222021-12-22 0000914156ufpt:DasMedicalMemberufpt:NoncompetitionAgreementsMember2021-12-222021-12-22 utr:Y 0000914156ufpt:DasMedicalMember2021-12-212021-12-21 0000914156ufpt:DasMedicalMember2021-12-21 0000914156ufpt:DasMedicalMemberufpt:CustomerContractsAndRelationshipsMember2021-12-21 0000914156ufpt:DasMedicalMemberus-gaap:IntellectualPropertyMember2021-12-21 0000914156ufpt:DasMedicalMemberus-gaap:NoncompeteAgreementsMember2021-12-21 0000914156ufpt:DasMedicalMember2021-01-012022-09-30 0000914156ufpt:DasMedicalMember2021-01-012021-12-31 0000914156ufpt:ContechMedicalIncMember2021-10-12 0000914156ufpt:ContechMedicalIncMember2021-10-122021-10-12 0000914156ufpt:ContechMedicalIncMemberufpt:CustomerContractsAndRelationshipsMember2021-10-12 0000914156ufpt:ContechMedicalIncMemberus-gaap:IntellectualPropertyMember2021-10-12 0000914156ufpt:ContechMedicalIncMemberus-gaap:NoncompeteAgreementsMember2021-10-12 0000914156ufpt:ContechMedicalIncMember2021-01-012022-09-30 0000914156ufpt:ContechMedicalIncMember2022-01-012022-09-30 0000914156ufpt:ContechMedicalIncMember2021-01-012021-12-31 0000914156ufpt:ContechMedicalIncAndDasMedicalMember2021-07-012021-09-30 0000914156ufpt:ContechMedicalIncAndDasMedicalMember2021-01-012021-09-30 0000914156us-gaap:ProductMember2022-07-012022-09-30 0000914156us-gaap:ProductMember2021-07-012021-09-30 0000914156us-gaap:ProductMember2022-01-012022-09-30 0000914156us-gaap:ProductMember2021-01-012021-09-30 0000914156ufpt:ToolingAndMachineryMember2022-07-012022-09-30 0000914156ufpt:ToolingAndMachineryMember2021-07-012021-09-30 0000914156ufpt:ToolingAndMachineryMember2022-01-012022-09-30 0000914156ufpt:ToolingAndMachineryMember2021-01-012021-09-30 0000914156ufpt:EngineeringAndDevelopmentMember2022-07-012022-09-30 0000914156ufpt:EngineeringAndDevelopmentMember2021-07-012021-09-30 0000914156ufpt:EngineeringAndDevelopmentMember2022-01-012022-09-30 0000914156ufpt:EngineeringAndDevelopmentMember2021-01-012021-09-30 0000914156ufpt:DeferredRevenueMember2022-01-012022-09-30 0000914156ufpt:DeferredRevenueMember2021-01-012021-09-30 0000914156us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-06-30 0000914156us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-31 0000914156us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2022-06-30 0000914156us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-31 0000914156ufpt:ContechMedicalIncAndDasMedicalMember2022-01-012022-09-30 0000914156ufpt:ContechMedicalIncAndDasMedicalMember2021-12-31 0000914156ufpt:ContechMedicalIncAndDasMedicalMember2022-09-30 0000914156ufpt:ContechMedicalIncAndDasMedicalMemberus-gaap:SubsequentEventMember2022-10-012022-11-09 0000914156ufpt:ContechMedicalIncAndDasMedicalMember2022-07-012022-09-30 0000914156ufpt:DasMedicalMemberufpt:NoncompetitionAgreementsMember2022-01-012022-06-30 0000914156us-gaap:CommonStockMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2022-07-012022-09-30 0000914156us-gaap:CommonStockMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2021-07-012021-09-30 0000914156us-gaap:CommonStockMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2022-01-012022-09-30 0000914156us-gaap:CommonStockMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2021-01-012021-09-30 0000914156ufpt:EmployeeAndNonemployeeStockOptionMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2022-07-012022-09-30 0000914156ufpt:EmployeeAndNonemployeeStockOptionMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2021-07-012021-09-30 0000914156ufpt:EmployeeAndNonemployeeStockOptionMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2022-01-012022-09-30 0000914156ufpt:EmployeeAndNonemployeeStockOptionMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2021-01-012021-09-30 0000914156us-gaap:RestrictedStockUnitsRSUMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2022-07-012022-09-30 0000914156us-gaap:RestrictedStockUnitsRSUMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2021-07-012021-09-30 0000914156us-gaap:RestrictedStockUnitsRSUMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2022-01-012022-09-30 0000914156us-gaap:RestrictedStockUnitsRSUMemberus-gaap:SellingGeneralAndAdministrativeExpensesMember2021-01-012021-09-30 0000914156us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-07-012022-09-30 0000914156us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-07-012021-09-30 0000914156us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-01-012022-09-30 0000914156us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-01-012021-09-30 0000914156us-gaap:StockCompensationPlanMember2022-07-012022-09-30 0000914156us-gaap:StockCompensationPlanMember2021-07-012021-09-30 0000914156us-gaap:StockCompensationPlanMember2022-01-012022-09-30 0000914156us-gaap:StockCompensationPlanMember2021-01-012021-09-30 0000914156ufpt:EmployeeAndNonemployeeStockOptionMember2021-12-31 0000914156ufpt:EmployeeAndNonemployeeStockOptionMember2022-01-012022-09-30 0000914156ufpt:EmployeeAndNonemployeeStockOptionMember2022-09-30 0000914156srt:DirectorMember2022-06-082022-06-08 00009141562022-06-08 00009141562022-06-082022-06-08 0000914156ufpt:EmployeeAndNonemployeeStockOptionMember2021-01-012021-09-30 0000914156ufpt:EmployeeAndNonemployeeStockOptionMember2021-01-012021-06-30 0000914156us-gaap:RestrictedStockUnitsRSUMember2021-12-31 0000914156us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-09-30 0000914156us-gaap:RestrictedStockUnitsRSUMember2022-09-30 0000914156us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-09-30 00009141562022-01-012022-06-30 00009141562021-01-012021-06-30 0000914156us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMemberufpt:OneCustomerMember2022-07-012022-09-30 0000914156us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMemberufpt:OneCustomerMember2022-01-012022-09-30 0000914156us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMemberufpt:OneCustomerMember2022-01-012022-09-30 0000914156ufpt:MedicalMember2022-07-012022-09-30 0000914156ufpt:MedicalMember2021-07-012021-09-30 0000914156ufpt:MedicalMember2022-01-012022-09-30 0000914156ufpt:MedicalMember2021-01-012021-09-30 0000914156ufpt:AutomotiveMember2022-07-012022-09-30 0000914156ufpt:AutomotiveMember2021-07-012021-09-30 0000914156ufpt:AutomotiveMember2022-01-012022-09-30 0000914156ufpt:AutomotiveMember2021-01-012021-09-30 0000914156ufpt:AerospaceDefenseMember2022-07-012022-09-30 0000914156ufpt:AerospaceDefenseMember2021-07-012021-09-30 0000914156ufpt:AerospaceDefenseMember2022-01-012022-09-30 0000914156ufpt:AerospaceDefenseMember2021-01-012021-09-30 0000914156ufpt:ConsumerMember2022-07-012022-09-30 0000914156ufpt:ConsumerMember2021-07-012021-09-30 0000914156ufpt:ConsumerMember2022-01-012022-09-30 0000914156ufpt:ConsumerMember2021-01-012021-09-30 0000914156ufpt:IndustrialMember2022-07-012022-09-30 0000914156ufpt:IndustrialMember2021-07-012021-09-30 0000914156ufpt:IndustrialMember2022-01-012022-09-30 0000914156ufpt:IndustrialMember2021-01-012021-09-30 0000914156ufpt:ElectronicsMember2022-07-012022-09-30 0000914156ufpt:ElectronicsMember2021-07-012021-09-30 0000914156ufpt:ElectronicsMember2022-01-012022-09-30 0000914156ufpt:ElectronicsMember2021-01-012021-09-30 0000914156ufpt:IntellectualPropertyTradenameAndBrandMember2022-01-012022-09-30 0000914156us-gaap:NoncompeteAgreementsMember2022-01-012022-09-30 0000914156us-gaap:CustomerListsMember2022-01-012022-09-30 0000914156ufpt:IntellectualPropertyTradenameAndBrandMember2022-09-30 0000914156us-gaap:NoncompeteAgreementsMember2022-09-30 0000914156us-gaap:CustomerListsMember2022-09-30 0000914156ufpt:SecondAmendedAndRestatedCreditAgreementMemberufpt:SubsidiaryGuarantorsMember2021-12-22 0000914156ufpt:SecondAmendedAndRestatedCreditAgreementMemberufpt:SubsidiaryGuarantorsMemberufpt:SecuredTermLoanMember2021-12-22 0000914156ufpt:SecuredRevolvingCreditFacilityMemberufpt:SecondAmendedAndRestatedCreditAgreementMemberufpt:SubsidiaryGuarantorsMember2021-12-22 0000914156ufpt:SecondAmendedAndRestatedCreditAgreementMemberufpt:SubsidiaryGuarantorsMemberufpt:SecuredTermLoanMember2021-12-222021-12-22 0000914156ufpt:SecondAmendedAndRestatedCreditAgreementMemberufpt:SubsidiaryGuarantorsMembersrt:MinimumMemberufpt:BloombergShorttermBankYieldIndexRateMember2021-12-222021-12-22 0000914156ufpt:SecondAmendedAndRestatedCreditAgreementMemberufpt:SubsidiaryGuarantorsMembersrt:MaximumMemberufpt:BloombergShorttermBankYieldIndexRateMember2021-12-222021-12-22 0000914156ufpt:SecondAmendedAndRestatedCreditAgreementMemberufpt:SubsidiaryGuarantorsMembersrt:MaximumMemberus-gaap:PrimeRateMember2021-12-222021-12-22 0000914156ufpt:SecondAmendedAndRestatedCreditAgreementMemberufpt:SubsidiaryGuarantorsMember2022-09-30 0000914156us-gaap:RevolvingCreditFacilityMemberus-gaap:LineOfCreditMember2022-09-30 0000914156ufpt:TermLoanMember2022-09-30 0000914156us-gaap:InterestRateSwapMember2018-02-01 0000914156us-gaap:InterestRateSwapMember2018-02-012018-02-01 0000914156us-gaap:InterestRateSwapMember2022-09-30 0000914156us-gaap:OtherAssetsMemberus-gaap:InterestRateSwapMember2022-09-30 0000914156us-gaap:OtherCurrentLiabilitiesMemberus-gaap:InterestRateSwapMember2022-06-30 0000914156us-gaap:InterestRateSwapMemberus-gaap:OtherNonoperatingIncomeExpenseMember2022-07-012022-09-30 0000914156us-gaap:InterestRateSwapMemberus-gaap:OtherNonoperatingIncomeExpenseMember2022-01-012022-09-30 0000914156us-gaap:InterestRateSwapMemberus-gaap:OtherNonoperatingIncomeExpenseMember2021-07-012021-09-30 0000914156us-gaap:InterestRateSwapMemberus-gaap:OtherNonoperatingIncomeExpenseMember2021-01-012021-09-30
 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)         

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended     SEPTEMBER 30, 2022  

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

 

Commission File Number: 001-12648

UFP Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

04-2314970

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

100 Hale Street, Newburyport, MA 01950, USA

(Address of principal executive offices) (Zip Code)

 

(978) 352-2200

(Registrant's telephone number, including area code)

_________________________________________

(Former name, former address, and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange
on which registered

Common Stock

UFPT

The NASDAQ Stock Market L.L.C.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company

 

Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes No ☒

 

7,578,605 shares of registrant’s Common Stock, $0.01 par value, were outstanding as of November 1, 2022.

 

 

 

 

UFP Technologies, Inc.

 

Index

 

Page

 

PART I - FINANCIAL INFORMATION

3

Item 1.

Financial Statements

3

Condensed Consolidated Balance Sheets as of September 30, 2022, and December 31, 2021 (unaudited)

3

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022, and September 30, 2021 (unaudited)

4

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022, and September 30, 2021 (unaudited)

5

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022, and September 30, 2021 (unaudited)

6

Notes to Interim Condensed Consolidated Financial Statements

7

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

29

PART II - OTHER INFORMATION

30

Item 1.

Legal Proceedings

30

Item 1A. 

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

31

Item 5.

Other Information

31

Item 6.

Exhibits

31

Signatures

32

 

 

 

 

 

 

 

 

 

 

PART I:          FINANCIAL INFORMATION

ITEM 1:         FINANCIAL STATEMENTS

 

UFP Technologies, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)

 

  

September 30,
2022

  

December 31,

2021

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $9,937  $11,117 

Receivables, net

  61,477   39,384 

Inventories

  53,821   33,436 

Prepaid expenses and other current assets

  2,421   3,383 

Refundable income taxes

  2,590   - 

Total current assets

  133,842   87,320 

Property, plant and equipment

  107,809   126,837 

Less accumulated depreciation and amortization

  (51,463)  (70,268)

Net property, plant and equipment

  56,346   56,569 

Goodwill

  112,657   107,905 

Intangible assets, net

  69,041   67,585 

Non-qualified deferred compensation plan

  3,882   4,327 

Finance lease right of use assets

  226   271 

Operating lease right of use assets

  12,114   9,053 

Other assets

  3,807   1,102 

Total assets

 $391,915  $334,132 
         

Liabilities and Stockholders Equity

        

Current liabilities:

        

Accounts payable

 $20,899  $10,611 

Accrued expenses

  26,019   12,700 

Deferred revenue

  4,173   4,247 

Finance lease liabilities

  59   58 

Operating lease liabilities

  2,250   2,181 

Income taxes payable

  -   909 

Current installments of long-term debt

  4,000   4,000 

Total current liabilities

  60,996   34,706 

Long-term debt, excluding current installments

  67,000   71,000 

Deferred income taxes

  4,127   3,263 

Non-qualified deferred compensation plan

  3,886   4,337 

Finance lease liabilities

  171   215 

Operating lease liabilities

  10,029   6,903 

Other liabilities

  19,547   19,262 

Total liabilities

  165,756   139,686 

Commitments and contingencies

          

Stockholders’ equity:

        

Preferred stock, $.01 par value, 1,000,000 shares authorized; no shares issued

  -   - 

Common stock, $.01 par value, 20,000,000 shares authorized; 7,608,164 and 7,578,605 shares issued and outstanding, respectively, at September 30, 2022; 7,564,645 and 7,535,086 shares issued and outstanding, respectively, at December 31, 2021

  76   75 

Additional paid-in capital

  35,396   34,151 

Retained earnings

  194,134   160,807 

Accumulated other comprehensive loss

  (2,860)  - 

Treasury stock at cost: 29,559 shares at September 30, 2022 and December 31, 2021

  (587)  (587)

Total stockholders’ equity

  226,159   194,446 

Total liabilities and stockholders' equity

 $391,915  $334,132 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

3

 

 

 

UFP Technologies, Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Net sales

  $ 96,970     $ 50,723     $ 262,555     $ 149,977  

Cost of sales

    71,447       38,707       195,575       111,938  

Gross profit

    25,523       12,016       66,980       38,039  

Selling, general & administrative expenses

    11,822       6,806       33,909       21,343  

Acquisition costs

    10       154       1,027       154  

Change in fair value of contingent consideration

    3,346       -       9,348       -  

Gain on sale of Molded Fiber business

    (15,623 )           (15,623 )      

Loss (Gain) on sale of property, plant & equipment

    3       (21 )     (6,206 )     (42 )

Operating income

    25,965       5,077       44,525       16,584  

Interest income

    (11 )     -       (33 )     11  

Interest expense

    841       16       1,924       -  

Other (income) expenses

    (104 )     4       (313 )     (2 )

Income before income tax expense

    25,239       5,057       42,947       16,575  

Income tax expense

    5,699       1,268       9,620       3,908  

Net income

  $ 19,540     $ 3,789     $ 33,327     $ 12,667  
                                 

Net income per share:

                               

Basic

  $ 2.58     $ 0.50     $ 4.41     $ 1.68  

Diluted

  $ 2.56     $ 0.50     $ 4.37     $ 1.67  

Weighted average common shares outstanding:

                               

Basic

    7,570       7,531       7,559       7,522  

Diluted

    7,638       7,597       7,629       7,585  
                                 
                                 

Comprehensive Income

                               

Net Income

  $ 19,540     $ 3,789     $ 33,327     $ 12,667  

Other comprehensive income:

                               

Foreign currency translation adjustment

    (1,725 )     -       (2,860 )     -  

Other comprehensive loss

    (1,725 )     -       (2,860 )     -  

Comprehensive income

  $ 17,815     $ 3,789     $ 30,467     $ 12,667  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

 

 

 

UFP TECHNOLOGIES, INC.

Condensed Consolidated Statements of Stockholders Equity

(In thousands)

(Unaudited)

 

Three and Nine Months Ended September 30, 2022

 
                   

Additional

           

Accumulated

                   

Total

 
   

Common Stock

   

Paid-in

   

Retained

   

Other Comprehensive

   

Treasury Stock

   

Shareholders'

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income (Loss)

   

Shares

   

Amount

   

Equity

 

Balance at December 31, 2021

    7,535     $ 75     $ 34,151     $ 160,807       -       30     $ (587 )     194,446  

Share-based compensation

    46       1       691       -       -       -       -       692  

Net share settlement of RSUs

    (20 )     -       (1,299 )     -       -       -       -       (1,299 )

Other comprehensive income

    -       -       -       -       381       -       -       381  

Net income

    -       -       -       4,858       -       -       -       4,858  

Balance at March 31, 2022

    7,561       76       33,543       165,665       381       30       (587 )     199,078  

Share-based compensation

    4       -       781       -       -       -       -       781  

Exercise of stock options

    1       -       21       -       -       -       -       21  

Net share settlement of RSUs

    -       -       (3 )     -       -       -       -       (3 )

Other comprehensive income

    -       -       -       -       (1,516 )     -       -       (1,516 )

Net income

    -       -       -       8,929       -       -       -       8,929  

Balance at June 30, 2022

    7,566       76       34,342       174,594       (1,135 )     30       (587 )     207,290  

Share-based compensation

    -       -       897       -       -       -       -       897  

Exercise of stock options

    14       -       346       -       -       -       -       346  

Net share settlement of RSUs

    (11 )     -       (189 )     -       -       -       -       (189 )

Other comprehensive income

    -       -       -       -       (1,725 )     -       -       (1,725 )

Net income

    -       -       -       19,540       -       -       -       19,540  

Balance at September 30, 2022

    7,569       76       35,396       194,134       (2,860 )     30       (587 )     226,159  

 

Three and Nine Months Ended September 30, 2021

 
                   

Additional

           

Accumulated

                   

Total

 
   

Common Stock

   

Paid-in

   

Retained

   

Other Comprehensive

   

Treasury Stock

   

Shareholders'

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income (Loss)

   

Shares

   

Amount

   

Equity

 

Balance at December 31, 2020

    7,500     $ 75     $ 32,484     $ 144,921       -       30     $ (587 )     176,893  

Share-based compensation

    34       -       501       -       -       -       -       501  

Net share settlement of RSUs

    (14 )     -       (738 )     -       -       -       -       (738 )

Other comprehensive income

    -       -       -       -       -       -       -       -  

Net income

    -       -       -       4,163       -       -       -       4,163  

Balance at March 31, 2021

    7,520       75       32,247       149,084       -       30       (587 )     180,819  

Share-based compensation

    4       -       620       -       -       -       -       620  

Exercise of stock options

    7       -       162       -       -       -       -       162  

Net share settlement of RSUs

    -       -       (2 )     -       -       -       -       (2 )

Other comprehensive income

    -       -       -       -       -       -       -       -  

Net income

    -       -       -       4,715       -       -       -       4,715  

Balance at June 30, 2021

    7,531       75       33,027       153,799       -       30       (587 )     186,314  

Share-based compensation

    -       -       650       -       -                   650  

Exercise of stock options

    -       -       -       -       -                   -  

Net share settlement of RSUs

    -       -       -       -       -                     -  

Other comprehensive income

    -       -       -       -       -                     -  

Net income

    -       -       -       3,789       -                     3,789  

Balance at September 30, 2021

    7,531       75       33,677       157,588       -       30       (587 )     190,753  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5

 

 

 

UFP Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

   

Nine Months Ended

 
   

September 30,

 
   

2022

   

2021

 

Cash flows from operating activities:

               

Net income

  $ 33,327     $ 12,667  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    9,137       6,209  

Gain on disposal of property, plant & equipment

    (6,206 )     (43 )

Gain on sale of Molded Fiber business

    (15,623 )     -  

Share-based compensation

    2,370       1,771  

Interest expense on finance leases

    4       2  

Deferred income taxes

    415       482  

Change in fair value of contingent consideration

    9,348       -  

Changes in operating assets and liabilities:

               

Receivables, net

    (19,841 )     (6,028 )

Inventories

    (20,085 )     (3,032 )

Prepaid expenses and other current assets

    118       (517 )

Refundable income taxes

    (3,624 )     (848 )

Other assets

    (2,637 )     72  

Accounts payable

    6,334       3,210  

Accrued expenses

    12,987       417  

Deferred revenue

    501       (216 )

Non-qualified deferred compensation plan and other liabilities

    (6,669 )     (469 )

Net cash provided by operating activities

    (144 )     13,677  

Cash flows from investing activities:

               

Additions to property, plant, and equipment

    (10,816 )     (4,277 )

Acquisition of Advant, net of cash acquired

    (20,768 )     -  

Acquisition of DAS Medical, working capital adjustment

    115       -  

Proceeds from sale of Molded Fiber

    29,007       -  

Proceeds from sale of fixed assets

    6,717       51  

Net cash provided by (used in) investing activities

    4,255       (4,226 )

Cash flows from financing activities:

               

Proceeds from advances on revolving line of credit

    44,000       -  

Payments on revolving line of credit

    (45,000 )     -  

Principal payments of long-term debt

    (3,000 )     -  

Principal payments on finance lease obligations

    (47 )     (13 )

Proceeds from exercise of stock options

    367       162  

Payment of statutory withholdings for restricted stock units vested

    (1,491 )     (740 )

Net cash used in financing activities

    (5,171 )     (591 )

Effect of foreign currency exchange rates on cash and cash equivalents

    (120 )     -  

Net (decrease) increase in cash and cash equivalents

    (1,180 )     8,860  

Cash and cash equivalents at beginning of period

    11,117       24,234  

Cash and cash equivalents at end of period

  $ 9,937     $ 33,094  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 

 

Notes to Interim Condensed Consolidated Financial Statements

 

 

(1)

Basis of Presentation

 

The interim condensed consolidated financial statements of UFP Technologies, Inc. (the “Company”) presented herein, have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021, included in the Company's 2021 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.

 

The condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, the condensed consolidated statements of income for the three and nine months ended September 30, 2022 and 2021, the con‐densed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021 are unaudited but, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of results for these interim periods. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the Company’s annual financial statements that were audited by an independent registered public accounting firm, but does not include all of the information and footnotes required for complete annual financial statements.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

 

The results of operations for the three- and nine-month periods ended September 30, 2022 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2022.

 

New Accounting Policy

 

The Company translates all assets and liabilities of its foreign subsidiaries, where the U.S. dollar is not the functional currency, at the period-end exchange rate and translates income and expenses at the average exchange rates in effect during the period. The net effect of this translation is recorded in the consolidated financial statements as a component of Accumulated Other Comprehensive Income (AOCI). Translation adjustments are not adjusted for income taxes as they relate to permanent investments in the Company’s foreign subsidiaries.

 

Recent Accounting Pronouncements

 

There are no newly issued accounting pronouncements that the Company expects to have a material effect on the financial statements.

 

 

(2)

Acquisitions and Divestiture

 

Molded Fiber

 

On July 26, 2022, pursuant to a share purchase agreement and related agreements, the Company sold its molded fiber business (“MFT”) and related real estate in Iowa to CKF USA INCORPORATED (“CKF”) (a Delaware Corporation) for approximately $31.4 million (including a working capital adjustment of approximately $0.2 million that decreased the total consideration). The net book value of the assets sold were approximately $15.4 million and the Company recorded a net gain on sale of approximately $15.6 million, which was recorded in the three- and nine-month period ended September 30, 2022. $2.6 million of the purchase price is being held in escrow to indemnify CKF against certain claims, losses, and liabilities. The Securities Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. MFT’s annual revenue was approximately $21.3 million for the year ended December 31, 2021. Proceeds from the sale were used to pay down debt on the Company’s revolving credit facility, as well as income tax obligations on the related gain.

 

7

 

Advant Medical

 

On March 16, 2022, the Company purchased 100% of the outstanding shares of common stock of Advant Medical, Ltd., Advant Medical Inc. and Advant Medical Costa Rica, Limitada, (together Advant), pursuant to a Stock Purchase Agreement and related agreements, for an aggregate purchase price of €19.0 million in cash along with a working capital adjustment at closing (total consideration in U.S. Dollars amounted to approximately $21.2 million). The purchase price was subject to additional adjustment based upon Advant’s final working capital at closing. A portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses, and liabilities. The Stock Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type.

 

Founded in 1993, Advant is headquartered in Galway, Ireland, with operations in Costa Rica and partner manufacturing in Mexico. Advant is a developer and manufacturer of Class I, II, and III medical devices and packaging, primarily for catheters and guide wires.

 

The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s preliminary estimates of fair value (in thousands):

 

Fair value of considerations transferred

    

Cash paid at closing

 $23,608 

Other liability

  395 

Cash from Advant

  (2,840)

Total consideration

 $21,163 
     

Purchase price allocation

    

Accounts receivable

 $2,299 

Inventory

  2,410 

Other current assets

  213 

Property, plant, and equipment

  5,704 

Customer contracts & relationships

  2,925 

Intellectual property

  2,127 

Non-compete agreement

  259 

Lease right of use assets

  289 

Other assets

  41 

Goodwill

  7,140 

Total identifiable assets

 $23,407 

Accounts payable

  (772)

Accrued expenses

  (668)

Income taxes

  (66)

Deferred taxes

  (449)

Lease liabilities

  (289)

Net assets acquired

 $21,163 

 

Acquisition costs associated with the transaction were approximately $789 thousand, of which $759 thousand was charged to expense in the nine months ended September 30, 2022, and $30 thousand was charged to expense in the year ended December 31, 2021. These costs were primarily for legal, investment banking, and valuation services, as well as stamp duty filings and are reflected on the face of the income statement.

 

The amount of revenue and earnings of Advant recognized since the acquisition date, which is included in the condensed consolidated statement of income for the nine months ended September 30, 2022, was approximately $13.6 million and $1.8 million, respectively.

 

8

 

Pro-forma statements

 

The following table contains an unaudited pro forma condensed consolidated statement of operations for the nine-month periods ended September 30, 2022 and 2021 and the three-month period ended September 30, 2021, as if the Advant acquisition had occurred at the beginning of the respective periods (in thousands):

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2022

  

2021

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 

Sales

 $56,194  $266,782  $166,273 

Operating Income

 $5,440  $45,268  $18,187 

Net Income

 $4,018  $33,881  $13,796 

Earnings per share:

            

Basic

 $0.53  $4.48  $1.83 

Diluted

 $0.53  $4.44  $1.82 

 

The above unaudited pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have occurred had the acquisition occurred as presented. In addition, future results may vary significantly from the results reflected in such pro forma information.

 

DAS Medical

 

On December 22, 2021 the Company purchased 100% of the outstanding membership interests of DAS Medical Holdings, LLC, (DAS Medical) pursuant to a Securities Purchase Agreement, for a net purchase price of $66.7 million in cash. The purchase price was subject to adjustment based upon DAS Medical’s final working capital at closing, and the purchase price may be increased by up to $20.0 million in earn-out payments based upon the performance of the business during the four-year period following the closing. A portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses, and liabilities. The Securities Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. As a result of the final working capital adjustment, the total consideration was reduced by approximately $115 thousand.

 

In connection with its entry into the Purchase Agreement, the Company also entered into an Agreement for the Purchase and Sale of Personal Goodwill (the “Goodwill Agreement”) with the purchase price beneficiaries. Pursuant to the terms of the Goodwill Agreement, on December 22, 2021, the Company purchased from the beneficiaries their personal goodwill, including business relationships, trade secrets and knowledge in connection with DAS Medical’s business, for a purchase price of $20 million in cash.

 

The Company has also entered into Non-Competition Agreements with the beneficiaries and the Company has agreed to pay additional consideration to the parties to the Non-Competition Agreements, including an aggregate of $10.0 million in payments over the ten years following the closing of the DAS Medical acquisition for the 10-year noncompetition covenants of certain key owners.

 

Founded in 2010, DAS Medical is headquartered in Atlanta, Georgia, with manufacturing in the Dominican Republic. DAS Medical is a medical device contract manufacturer specializing in the design, development and production of single-use surgical equipment covers, robotic draping systems and fluid control pouches.

 

The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s preliminary estimates of fair value (in thousands):

 

9

 

Fair value of considerations transferred

    

Cash paid at closing

 $95,000 

Contingent liability (Earn-out)

  5,188 

Non-compete agreements

  8,855 

Cash from DAS

  (8,316)

Working capital adjustment

  (115)

Total consideration

 $100,612 
     

Purchase price allocation

    

Accounts receivable

 $2,351 

Inventory

  7,570 

Other current assets

  68 

Property, plant, and equipment

  3,314 

Customer contracts & relationships

  36,730 

Intellectual property

  2,380 

Non-compete agreement

  4,697 

Lease right of use assets

  1,221 

Goodwill

  51,985 

Total identifiable assets

 $110,316 

Accounts payable

  (5,238)

Accrued expenses

  (3,238)

Deferred revenue

  (7)

Lease liabilities

  (1,221)

Net assets acquired

 $100,612 

 

Acquisition costs associated with the transaction were approximately $448 thousand, of which $155 thousand were charged to expense in the nine months ended September 30, 2022, and $293 thousand were charged to expense in the year ended December 31, 2021. These costs were primarily for legal and valuation services and are reflected on the face of the income statement.

 

Contech Medical

 

On October 12, 2021, the Company purchased 100% of the outstanding shares of common stock of Contech Medical, Inc., pursuant to a stock purchase agreement and related agreements, for an aggregate purchase price of $9.5 million in cash, the assumption of a contingent liability of $0.5 million plus up to an additional $5 million in purchase price based upon the achievement of certain EBITDA targets of Contech for the 12-month period ended June 30, 2022. The purchase price was subject to adjustment based upon Contech’s working capital at closing. A portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses, and liabilities. The Stock Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type.

 

Founded in 1987, Contech is based in Providence, Rhode Island with partner manufacturing in Costa Rica. Contech is a global leader in the design, development, and manufacture of Class III medical device packaging primarily for catheters and guide wires. The Company has leased the Providence location from a realty trust owned by the selling shareholders and affiliates. The lease is for five years with one five-year renewal option.

 

The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s estimates of fair value (in thousands):

 

10

 

Fair value of considerations transferred

    

Cash paid at closing

 $9,766 

Contingent liability (Earn-out)

  4,543 

Other liability

  500 

Cash from Contech

  (266)

Total consideration

 $14,543 
     

Purchase price allocation

    

Accounts receivable

 $2,851 

Inventory

  2,320 

Other current assets

  37 

Property, plant, and equipment

  1,170 

Customer contracts & relationships

  3,043 

Intellectual property

  2,247 

Non-compete agreement

  86 

Lease right of use assets

  1,523 

Goodwill

  4,278 

Total identifiable assets

 $17,555 

Accounts payable

  (1,015)

Accrued expenses

  (414)

Deferred revenue

  (60)

Lease liabilities

  (1,523)

Net assets acquired

 $14,543 

 

Acquisition costs associated with the transaction were approximately $153 thousand, of which $113 thousand were charged to expense in the nine months ended September 30, 2022, and $40 thousand were charged to expense in the year ended December 31, 2021. These costs were primarily for legal and valuation services and are reflected on the face of the income statement.

 

Pro-forma statements

 

The following table contains an unaudited pro forma condensed consolidated statement of operations for the three- and six-month periods ended September 30, 2021, as if both the DAS Medical and Contech Medical acquisitions had occurred at the beginning of the period (in thousands):

 

  

Three-month Period Ended September 30, 2021

  

Nine-month Period Ended September 30, 2021

 
  

(Unaudited)

  

(Unaudited)

 

Sales

 $69,055  $201,660 

Operating income

 $7,627  $23,030 

Net income

 $5,707  $18,526 

Earnings per share:

        

Basic

 $0.76  $2.46 

Diluted

 $0.75  $2.44 

 

11

 

The above unaudited pro forma information is presented for illustrative purposes only and may not be indica‐tive of the results of operations that would have occurred had both acquisitions occurred as presented. In addition, future results may vary significantly from the results reflected in such pro forma information.

 

 

(3)

Revenue Recognition

 

The Company recognizes revenue when a customer obtains control of a promised good or service. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange for promised goods or services. The Company recognizes revenue in accordance with the core principles of ASC 606 which include (1) identifying the contract with a customer, (2) identifying separate performance obligations within the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing revenue. The Company recognizes all but an immaterial portion of its product sales upon shipment. The Company recognizes revenue from the sale of tooling and machinery primarily upon customer acceptance, with the exception of certain tooling where control does not transfer to the customer, resulting in revenue being recognized over the estimated time for which parts are produced with the use of each respective tool. The Company recognizes revenue from engineering services, which are primarily product development services, as the services are performed or as otherwise determined based on the substance of the agreement. The Company recognizes revenue from bill and hold transactions at the time the specified goods are complete and available to the customer. In the ordinary course of business, the Company accepts sales returns from customers for defective goods, such amounts being immaterial. Although only applicable to an insignificant number of transactions, the Company has elected to exclude sales taxes from the transaction price. The Company has elected to account for shipping and handling activities for which the Company is responsible under the terms and conditions of the sale not as performance obligations but rather as fulfillment costs. These activities are required to fulfill the Company’s promise to transfer the good and are expensed when revenue is recognized.

 

Disaggregated Revenue

 

The following table presents the Company’s revenue disaggregated by the major types of goods and services sold to the Company’s customers (in thousands):

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

Net sales of:

 

2022

   

2021

   

2022

   

2021

 

Products

  $ 92,860     $ 49,613     $ 251,996     $ 146,402  

Tooling and Machinery

    2,659       405       5,984       1,149  

Engineering services

    1,451       705       4,575       2,426  

Total net sales

  $ 96,970     $ 50,723     $ 262,555     $ 149,977  

 

Contract balances

 

Timing of revenue recognition may differ from the timing of invoicing to customers. When invoicing occurs prior to revenue recognition, the Company has contract liabilities included within “deferred revenue” on the condensed consolidated balance sheet.

 

The following table presents a roll-forward of contract liabilities activity for the nine-month periods ended September 30, 2022 and 2021 (in thousands):

 

  

Contract Liabilities

 
  

Nine Months Ended
September 30,

 
  

2022

  

2021

 

Deferred revenue - beginning of period

 $4,247  $1,887 

Increases due to consideration received from customers

  4,836   2,111 

Revenue recognized

  (4,335)  (1,192)

Decrease due to sale of Molded Fiber

  (575)  - 

Deferred revenue - end of period

 $4,173  $2,806 

 

12

 

Revenue recognized during the nine-month periods ended September 30, 2022 and 2021 from amounts included in deferred revenue at the beginning of the period were approximately $2.2 million and $659 thousand, respectively.

 

When invoicing occurs after revenue recognition, the Company has contract assets, included within “receivables” on the condensed consolidated balance sheet.

 

   

Contract Assets

 
   

Nine Months Ended
September 30,

 
   

2022

   

2021

 

Unbilled receivables - beginning of period

  $ 74     $ 271  

Increases due to revenue recognized, not invoiced to customers

    3,065       1,461  

Decreases due to customer invoicing

    (2,429 )     (1,509 )

Unbilled receivables - end of period

  $ 710     $ 223  

 

The following table presents a roll-forward of contract assets activity for the nine-month periods ended September 30, 2022 and 2021 (in thousands):

 

 

(4)

Supplemental Cash Flow Information

 

   

Nine Months Ended

 
   

September 30,

 
   

2022

   

2021

 
   

(in thousands)

 

Cash paid for:

               

Interest

  $ 1,869     $ 39  

Income taxes, net of refunds

    12,315       4,274  
                 

Non-cash investing and financing activities:

               

Capital additions accrued but not yet paid

  $ 133     $ 225  

 

 

(5)

Receivables and Allowance for Credit Losses

 

Receivables consist of the following (in thousands):

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Accounts receivable–trade

  $ 65,814     $ 39,903  

Less allowance for credit losses

    (741 )     (519 )

Receivables, net

  $ 65,073     $ 39,384  

 

The Company is exposed to credit losses primarily through sales of products and services. The Company’s expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions, and a review of the current status of customers' trade accounts receivables. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. Estimates based on an assessment of anticipated payment and all other historical, current, and future information that is reasonably available are used to determine the allowance.

 

13

 

The following table provides a roll-forward of the allowance for credit losses that is deducted from accounts receivable to present the net amount expected to be collected as of September 30, 2022 and 2021 (in thousands):

 

   

Allowance for Credit
Losses

 
   

Nine Months Ended
September 30,

 
   

2022

   

2021

 

Allowance - beginning of period

  $ 519     $ 484  

Provision for expected credit losses

    275       92  

Amounts written off against the allowance

    (53 )     (54 )

Allowance - end of period

  $ 741     $ 522  

 

 
 

(6)

Fair Value of Financial Instruments

 

Financial instruments recorded at fair value in the consolidated balance sheets, or disclosed at fair value in the footnotes, are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels defined by ASC 820, Fair Value Measurements and Disclosures, and directly related to the amount of subjectivity associated with inputs to fair valuation of these assets and liabilities, are as follows:

 

Level 1

Valued based on unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

 

Level 2

Valued based on either directly or indirectly observable prices for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

 

Level 3

Valued based on management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

 

The following table presents the fair value and hierarchy levels, for financial assets that are measured at fair value on a recurring basis (in thousands):

 

   

September 30, 2022

   

December 31, 2021

 

Level 2

               

Assets (Liabilities):

               

Derivative financial instruments

  $ 26     $ (176 )

Level 3

               

Purchase price contingent consideration (Note 2):

               

Accrued contingent consideration (earn-out)

  $ (19,079 )   $ (9,731 )

Present value of non-competition payments

    (9,746 )     (8,855 )

 

Derivative financial instruments consist of an interest rate swap for which fair value is determined through the use of a pricing model that utilizes verifiable inputs such as market interest rates that are observable at commonly quoted intervals for the full term of the swap agreement.

 

14

 

In connection with the acquisitions discussed in Note 2, “Acquisitions,” the Company is required to make contingent payments, subject to the entities achieving certain financial performance thresholds. The contingent consideration payments for both the DAS Medical and Contech Medical acquisitions combined are up to $25 million. The fair value of the liabilities for the contingent consideration payments recognized upon the acquisition as part of the purchase accounting opening balance sheets totaled approximately $9.7 million and was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in this calculation were managements financial forecasts, discount rate and various volatility factors. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period. The fair value of the liabilities for the contingent consideration payments recognized at September 30, 2022 for both the DAS Medical and Contech Medical acquisitions combined totaled approximately $19.1 million. Subsequent to the September 30, 2022 quarter-end, the Contech Medical contingent consideration balance of $5,000,000 was paid in full. The change in fair value of contingent consideration for the DAS Medical and Contech Medical acquisitions for the three and nine-month periods ended September 30, 2022, resulted in an expense of approximately $3.3 million and $9.3 million, respectively, and was included in change in fair value of contingent consideration in the consolidated statements of income.

 

In connection with the DAS Medical acquisition, the Company has entered into Non-Competition Agreements with the beneficiaries and the Company has agreed to pay additional consideration to the parties to the Non-Competition Agreements, including an aggregate of $10.0 million in payments over the ten years following the closing of the DAS Medical acquisition for the 10-year noncompetition covenants of certain key owners. In connection with the Advant Medical acquisition, the Company has entered into Non-Competition Agreements with the beneficiaries and the Company has agreed to pay additional consideration to the parties to the Non-Competition Agreements, including an aggregate of €375 thousand in payments over the final three years of the five years following the closing of the Advant Medical acquisition for the 5-year noncompetition covenants of certain key owners.

 

The Company has financial instruments, such as accounts receivable, accounts payable, and accrued expenses, that are stated at carrying amounts that approximate fair value because of the short maturity of those instruments. The carrying amount of the Company’s long-term debt approximates fair value as the interest rate on the debt approximates the estimated borrowing rate currently available to the Company.

 

 

(7)

Share-Based Compensation

 

Share-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant).

 

The Company issues share-based awards through several plans that are described in detail in the notes to the consolidated financial statements for the year ended December 31, 2021. The compensation cost charged against income for those plans is included in selling, general & administrative expenses as follows (in thousands):

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

Share-based compensation related to:

 

2022

  

2021

  

2022

  

2021

 

Common stock grants

 $100  $100  $300  $300 

Stock option grants

  75   52   188   157 

Restricted Stock Unit Awards ("RSUs")

  722   498   1,882   1,314 

Total share-based compensation

 $897  $650  $2,370  $1,771 

 

The total income tax benefit recognized in the condensed consolidated statements of income for share-based compensa‐tion arrangements was approximately $485 thousand and $167 thousand for the three-month periods ended September 30, 2022 and 2021, respectively, and approximately $1.1 million and $608 thousand for the nine-month periods ended September 30, 2022 and 2021, respectively.

 

Common stock grants

 

The compensation expense for common stock grants during the nine-month period ended September 30, 2022, was determined based on an approved fixed dollar amount with the number of shares to be determined on the date of issuance.

 

15

 

Stock Option grants

 

The following is a summary of stock option activity under all plans for the nine-month period ended September 30, 2022:

 

  

Shares Under Options

  

Weighted Average Exercise Price (per share)

  

Weighted Average Remaining Contractual Life (in years)

  

Aggregate Intrinsic Value (in thousands)

 

Outstanding at December 31, 2021

  98,671  $33.53         

Granted

  9,876   77.28         

Exercised

  (15,245)  24.10         

Outstanding at September 30, 2022

  93,302  $39.70   6.13  $4,305 

Exercisable at September 30, 2022

  83,426  $35.26   5.71  $4,220 

Vested and expected to vest at September 30, 2022

  93,302  $39.70  $6.13  $4,305 

 

On June 8, 2022, the Company granted options to its directors for the purchase of 9,876 shares of the Company’s common stock at that day’s closing price of $77.28. The compensation expense related to these grants was determined as the fair value of the options using the Black-Scholes option pricing model based on the following assumptions:

 

 

Expected volatility

  34.7%

Expected dividends

 

None

 

Risk-free interest rate

  2.9%

Exercise price

 $77.28 

Expected term (years)

  6.2 

Weighted-average grant date fair value

 $30.37 

 

The stock volatility for each grant is determined based on a review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected option term, and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods correspond‐ing with the expected term of the option. The expected term is estimated based on historical option exercise activity.

 

During the nine-month periods ended September 30, 2022 and 2021, the total intrinsic value of all options exercised was approximately $1.1 million and $164 thousand, respectively, and the total amount of consideration received by the Company from the exercised options was approximately $367 thousand and $162 thousand, respectively. At its discretion, the Company allows option holders to surrender previously owned common stock in lieu of paying the exercise price and withholding taxes. During the nine-month period ended September 30, 2022, 1,876 shares were surrendered at an average market price of $95.82. Zero shares were surrendered during the same period in 2021.

 

Restricted Stock Unit awards

 

The following table summarizes information about RSU activity during the nine-month period ended September 30, 2022:

 

16

 
  

Restricted Stock Units

  

Weighted Average
Grant Date
Fair Value

 

Outstanding at December 31, 2021

  101,168  $41.78 

Awarded

  51,981   74.94 

Shares vested

  (49,575)  41.05 

Shares forfeited

  (947)  64.32 

Outstanding at September 30, 2022

  102,627  $55.29 

 

At the Company’s discretion, upon vesting, RSU holders are given the option to net-share settle to cover the required minimum withholding tax and the remaining amount is converted into the equivalent number of common shares and issued to the RSU holder. During the nine-month periods ended September 30, 2022 and 2021, 19,425 and 14,112 shares were surrendered at an average market price of $67.05 and $52.47, respectively.

 

As of September 30, 2022, the Company had approximately $4.4 million of unrecognized compensation expense that is expected to be recognized over a period of 2.5 years.

 

 

(8)

Inventories

 

Inventories are stated at the lower of cost (determined using the first-in, first-out method) or net realizable value, and consist of the following at the stated dates (in thousands):

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 

Raw materials

  $ 39,071     $ 22,184  

Work in process

    5,981       4,205  

Finished goods

    8,769       7,047  

Total inventory

  $ 53,821     $ 33,436  

 

 

(9)

Leases

 

The Company has operating and finance leases for offices, manufacturing plants, vehicles and certain office and manufacturing equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the right of use (“ROU”) assets or lease liabilities. These are expensed as incurred and recorded as variable lease expense. The Company determines if an arrangement is a lease at the inception of a contract. Operating and finance lease ROU assets and operating and finance lease liabilities are stated separately in the condensed consolidated balance sheet. 

 

ROU assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments pursuant to the lease.  ROU assets and lease liabilities are recognized at commencement date based on the net present value of fixed lease payments over the lease term.  The Company's assumed lease term includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option.  ROU assets are also adjusted for any deferred or accrued rent. As the Company's leases do not typically provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

 

17

 

 

   

Nine Months Ended

 
   

September 30,

 
   

($ in thousands)

 
   

2022

   

2021

 

Lease Cost:

               

Finance lease cost:

               

Amortization of right of use assets

  $ 45     $ 12  

Interest on lease liabilities

    4       2  

Operating lease cost

    1,962       896  

Variable lease cost

    228       169  

Short-term lease cost

    49       30  

Total lease cost

  $ 2,288     $ 1,109  

 

   

Nine Months Ended

 
   

September 30,

 
   

($ in thousands)

 
   

2022

   

2021

 

Cash paid for amounts included in measurement of lease liabilities:

               

Operating cash flows from operating leases

  $ 1,839     $ 909  

Financing cash flows from finance leases

    47       11  
                 

Weighted-average remaining lease term (years):

               

Finance

    3.79       5.58  

Operating

    3.88       1.39  

Weighted-average discount rate:

               

Finance

    2.10 %     2.26 %

Operating

    2.75 %     3.95 %

 

The aggregate future lease payments for leases as of September 30, 2022 are as follows (in thousands):

 

   

Finance

   

Operating

 

Remainder of 2022

  $ 16     $ 611  

2023

    63       2,211  

2024

    63       2,190  

2025

    63       1,957  

2026

    28       1,733  

Thereafter

    6       4,775  

Total lease payments

    239       13,477  

Less: Interest

    (9 )     (1,198 )

Present value of lease liabilities

  $ 230     $ 12,279  

 

 

(10)

Net Income Per Share

 

Basic income per share is based on the weighted average number of shares of common stock outstanding. Diluted income per share is based upon the weighted average number of common shares outstanding and dilutive common stock equivalent shares outstanding during each period.

 

The weighted average number of shares used to compute basic and diluted net income per share consisted of the following (in thousands):

 

18

 
  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Basic weighted average common shares outstanding

  7,570   7,531   7,559   7,522 

Weighted average common equivalent shares due to restricted stock, stock options and RSUs

  68   66   70   63 

Diluted weighted average common shares outstanding

  7,638   7,597   7,629   7,585 

 

The computation of diluted net income per share excludes the effect of the potential exercise of stock awards, including stock options, when the average market price of the common stock is lower than the exercise price of the related stock options during the period.  These outstanding stock options are not included in the computation of diluted net income per share because the effect would be antidilutive.  For both the three- and nine-month periods ended September 30, 2022, the number of stock options excluded from the computation of diluted net income per share for this reason was 9,876.  For both the three- and nine-month periods ended September 30, 2021, the number of stock options excluded from the computation of diluted net income per share for this reason was 10,716.

 

 

(11)

Segment Reporting

 

The Company consists of a single operating and reportable segment.

 

One customer comprised 25.1% and 20.5% of the Company’s consolidated revenues for the three- and nine-month periods ended September 30, 2022, respectively. No customer comprised more than 10% of the Company’s consolidated revenues for the same periods in 2021. At September 30, 2022, one customer represented approximately 10.7% of gross accounts receivable. At December 31, 2021, no customer exceeded 10% of gross accounts receivable.

 

The Company’s products are primarily sold to customers within the Medical, Automotive, Aerospace & Defense, Consumer, Industrial, and Electronics markets. Net sales by market for the three- and nine-month periods ended September 30, 2022 and 2021 are as follows (in thousands):

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2022

  

2021(1)

  

2022

  

2021(1)

 

Market

 

Net Sales

  

%

  

Net Sales

  

%

  

Net Sales

  

%

  

Net Sales

  

%

 
                                 

Medical

 $81,591   84.1% $32,376   63.8% $208,464   79.4% $95,088   63.4%

Automotive

  4,681   4.8%  3,852   7.6%  13,383   5.1%  12,065   8.0%

Aerospace & Defense

  3,590   3.7%  3,881   7.7%  11,097   4.2%  12,636   8.4%

Consumer

  3,099   3.2%  6,449   12.7%  15,644   6.0%  18,125   12.1%

Industrial

  2,748   2.8%  2,162