UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
UFP Technologies, Inc.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(
(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 |
| | | The |
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.
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).
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 ☐ | |
| 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
UFP Technologies, Inc.
Index
| PART I: |
| ITEM 1: |
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
| September 30, | December 31, | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Receivables, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Refundable income taxes | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Non-qualified deferred compensation plan | ||||||||
| Right of use assets | ||||||||
| Deferred income taxes | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Lease liabilities | ||||||||
| Income taxes payable | ||||||||
| Current installments of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, excluding current installments | ||||||||
| Deferred income taxes | ||||||||
| Non-qualified deferred compensation plan | ||||||||
| Lease liabilities | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding, respectively, at September 30, 2023; and shares issued and outstanding, respectively, at December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock at cost: shares at September 30, 2023 and December 31, 2022 | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
(Unaudited)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Net sales |
$ | $ | $ | $ | ||||||||||||
| Cost of sales |
||||||||||||||||
| Gross profit |
||||||||||||||||
| Selling, general & administrative expenses |
||||||||||||||||
| Acquisition costs |
||||||||||||||||
| Change in fair value of contingent consideration |
||||||||||||||||
| Gain on sale of Molded Fiber business |
( |
) | ( |
) | ||||||||||||
| Loss (gain) on sale of property, plant & equipment |
( |
) | ||||||||||||||
| Operating income |
||||||||||||||||
| Interest expense, net |
||||||||||||||||
| Other (income) expenses |
( |
) | ( |
) | ( |
) | ||||||||||
| Income before income tax expense |
||||||||||||||||
| Income tax expense |
||||||||||||||||
| Net income |
$ | $ | $ | $ | ||||||||||||
| Net income per share: |
||||||||||||||||
| Basic |
$ | $ | $ | $ | ||||||||||||
| Diluted |
$ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding: |
||||||||||||||||
| Basic |
||||||||||||||||
| Diluted |
||||||||||||||||
| Comprehensive Income |
||||||||||||||||
| Net Income |
$ | $ | $ | $ | ||||||||||||
| Other comprehensive income: |
||||||||||||||||
| Foreign currency translation adjustment |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other comprehensive loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Comprehensive income |
$ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
| Three and Nine Months Ended September 30, 2023 |
||||||||||||||||||||||||||||||||
| 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, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Share-based compensation |
||||||||||||||||||||||||||||||||
| Exercise of stock options net of shares presented for exercise |
||||||||||||||||||||||||||||||||
| Net share settlement of RSUs |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Issuance of common stock |
||||||||||||||||||||||||||||||||
| Other comprehensive income |
- | - | ||||||||||||||||||||||||||||||
| Net income |
- | - | - | |||||||||||||||||||||||||||||
| Balance at March 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Share-based compensation |
||||||||||||||||||||||||||||||||
| Exercise of stock options |
||||||||||||||||||||||||||||||||
| Other comprehensive income |
- | - | ||||||||||||||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Balance at June 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Share-based compensation |
||||||||||||||||||||||||||||||||
| Other comprehensive loss |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Balance at September 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| 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 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Share-based compensation |
||||||||||||||||||||||||||||||||
| Net share settlement of RSUs |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Other comprehensive income |
- | - | ||||||||||||||||||||||||||||||
| Net income |
- | - | - | |||||||||||||||||||||||||||||
| Balance at March 31, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Share-based compensation |
||||||||||||||||||||||||||||||||
| Exercise of stock options |
||||||||||||||||||||||||||||||||
| Net share settlement of RSUs |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Other comprehensive income |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Balance at June 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Share-based compensation |
||||||||||||||||||||||||||||||||
| Exercise of stock options |
||||||||||||||||||||||||||||||||
| Other comprehensive loss |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Balance at September 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Loss (gain) on disposal of property, plant & equipment |
( |
) | ||||||
| Gain on sale of Molded Fiber business |
( |
) | ||||||
| Share-based compensation |
||||||||
| Deferred income taxes |
||||||||
| Change in fair value of contingent consideration |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Receivables, net |
( |
) | ( |
) | ||||
| Inventories |
( |
) | ( |
) | ||||
| Prepaid expenses and other current assets |
||||||||
| Income taxes payable |
( |
) | ( |
) | ||||
| Other assets |
( |
) | ||||||
| Accounts payable |
||||||||
| Accrued expenses |
( |
) | ||||||
| Deferred revenue |
( |
) | ||||||
| Non-qualified deferred compensation plan and other liabilities |
( |
) | ||||||
| Net cash provided by (used in) operating activities |
( |
) | ||||||
| Cash flows from investing activities: |
||||||||
| Additions to property, plant, and equipment |
( |
) | ( |
) | ||||
| Acquisition of Advant, net of cash acquired |
( |
) | ||||||
| Acquisition of DAS Medical, working capital adjustment |
||||||||
| Proceeds from sale of Molded Fiber |
||||||||
| Proceeds from sale of fixed assets |
||||||||
| Net cash (used in) provided by investing activities |
( |
) | ||||||
| Cash flows from financing activities: |
||||||||
| Proceeds from advances on revolving line of credit |
||||||||
| Payments on revolving line of credit |
( |
) | ( |
) | ||||
| Principal payments of long-term debt |
( |
) | ( |
) | ||||
| Payment of contingent consideration |
( |
) | ||||||
| Principal payments on finance lease obligations |
( |
) | ( |
) | ||||
| Proceeds from exercise of stock options |
||||||||
| Payment of statutory withholdings for restricted stock units vested |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Effect of foreign currency exchange rates on cash and cash equivalents |
( |
) | ( |
) | ||||
| Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents at beginning of period |
||||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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, 2022, included in the Company's 2022 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.
The condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, the condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022 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, 2022 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, 2023 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2023.
Recent Accounting Pronouncements
There are no newly issued accounting pronouncements that the Company expects to have a material effect on the financial statements.
| (2) |
Acquisition and Divestiture |
Molded Fiber
On July 26, 2022, pursuant to a share purchase agreement and related agreements, the Company sold its former wholly owned subsidiary Moulded Fibre Technology, Inc. (“MFT”) and related real estate in Iowa to CKF USA INCORPORATED (“CKF”) (a Delaware Corporation) for approximately $
Advant Medical
On March 16, 2022, the Company purchased
Founded in 1993, Advant is headquartered in Galway, Ireland, with operations in Costa Rica and partner manufacturing in Mexico. Advant is a developer and contract manufacturer of 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 estimates of fair value (in thousands):
| Fair value of considerations transferred |
||||
| Cash paid at closing |
$ | |||
| Other liability |
||||
| Cash from Advant |
( |
) | ||
| Total consideration |
$ | |||
| Purchase price allocation |
||||
| Accounts receivable |
$ | |||
| Inventory |
||||
| Other current assets |
||||
| Property, plant, and equipment |
||||
| Customer contracts & relationships |
||||
| Intellectual property |
||||
| Non-compete agreement |
||||
| Lease right of use assets |
||||
| Other assets |
||||
| Goodwill |
||||
| Total identifiable assets |
$ | |||
| Accounts payable |
( |
) | ||
| Accrued expenses |
( |
) | ||
| Income taxes |
( |
) | ||
| Deferred taxes |
( |
) | ||
| Lease liabilities |
( |
) | ||
| Net assets acquired |
$ |
Acquisition costs associated with the transaction through the third quarter of 2022 were approximately $
The amount of revenue and earnings of Advant recognized since the acquisition date through the third quarter of 2022 was approximately $
Pro-forma statements
The following table contains an unaudited pro forma condensed consolidated statement of operations for the nine-month period ended September 30, 2022, as if the Advant acquisition had occurred at the beginning of 2022 (in thousands):
| Nine-month Period Ended |
||||
| September 30, 2022 |
||||
| (Unaudited) |
||||
| Sales |
$ | |||
| Operating income |
$ | |||
| Net income |
$ | |||
| Earnings per share: |
||||
| Basic |
$ | |||
| Diluted |
$ | |||
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.
| (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. 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 goods 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: |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| Products |
$ | $ | $ | $ | ||||||||||||
| Tooling and Machinery |
||||||||||||||||
| Engineering services |
||||||||||||||||
| Total net sales |
$ | $ | $ | $ | ||||||||||||
Contract balances
The 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 sheets.
The following table presents a roll-forward of contract liabilities activity for the nine-month periods ended September 30, 2023 and 2022 (in thousands):
| Contract Liabilities |
||||||||
| Nine Months Ended |
||||||||
| 2023 |
2022 |
|||||||
| Deferred revenue - beginning of period |
$ | $ | ||||||
| Increases due to consideration received from customers |
||||||||
| Revenue recognized |
( |
) | ( |
) | ||||
| Decrease due to sale of Molded Fiber |
( |
) | ||||||
| Deferred revenue - end of period |
$ | $ | ||||||
Revenue recognized during the nine month periods ended September 30, 2023 and 2022 from amounts included in deferred revenue at the beginning of the period were approximately $
When invoicing occurs after revenue recognition, the Company has contract assets, included within “receivables” on the condensed consolidated balance sheet.
The following table presents a roll-forward of contract assets activity for the nine-month periods ended September 30, 2023 and 2022 (in thousands):
| Contract Assets |
||||||||
| Nine Months Ended |
||||||||
| 2023 |
2022 |
|||||||
| Unbilled receivables - beginning of period |
$ | $ | ||||||
| Increases due to revenue recognized, not invoiced to customers |
||||||||
| Decreases due to customer invoicing |
( |
) | ( |
) | ||||
| Unbilled receivables - end of period |
$ | $ | ||||||
| (4) |
Supplemental Cash Flow Information |
Supplemental cash flow information consists of the following (in thousands):
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Cash paid for: |
||||||||
| Interest |
$ | $ | ||||||
| Income taxes, net of refunds |
||||||||
| Non-cash investing and financing activities: |
||||||||
| Capital additions accrued but not yet paid |
$ | $ | ||||||
| Operating lease right of use asset |
||||||||
| Operating lease liabilities |
( |
) | ( |
) | ||||
| (5) |
Receivables and Allowance for Credit Losses |
Receivables consist of the following (in thousands):
| September 30, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Accounts receivable–trade |
$ | $ | ||||||
| Less allowance for credit losses |
( |
) | ( |
) | ||||
| Receivables, net |
$ | $ | ||||||
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 the 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.
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, 2023 and 2022 (in thousands):
| Allowance for Credit |
||||||||
| Nine Months Ended |
||||||||
| 2023 |
2022 |
|||||||
| Allowance - beginning of period |
$ | $ | ||||||
| Provision (adjustment) for expected credit losses |
( |
) | ||||||
| Amounts written off against the allowance |
( |
) | ( |
) | ||||
| Recoveries |
||||||||
| Allowance - end of period |
$ | $ | ||||||
| (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, 2023 | December 31, 2022 | |||||||
| Level 3 | ||||||||
| Purchase price contingent consideration: | ||||||||
| Accrued contingent consideration (earn-out) | $ | $ | ||||||
| Present value of non-competition payments | ||||||||
In connection with the acquisition of DAS Medical in 2021, the Company is required to make contingent payments, subject to the entities achieving certain financial performance thresholds. The contingent consideration payments for the DAS Medical acquisition are up to $
Also in connection with the DAS Medical and Advant Medical acquisitions, the Company has entered into Non-Competition Agreements with the beneficiaries (certain previous owners of DAS and Advant) and the Company has agreed to pay additional consideration to the parties to the Non-Competition Agreements, including an aggregate of $
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, 2022. 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: |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| Common stock grants |
$ | $ | $ | $ | ||||||||||||
| Stock option grants |
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| Restricted Stock Unit Awards ("RSUs") |
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| Total share-based compensation |
$ | $ | $ | $ | ||||||||||||
The total income tax benefit recognized in the condensed consolidated statements of comprehensive income for share-based compensation arrangements was approximately $
Common stock grants
The compensation expense for common stock grants during the nine-month period ended September 30, 2023, was determined based on an approved fixed dollar amount with the number of shares to be determined on the date of issuance.
Stock Option grants
The following is a summary of stock option activity under all plans for the nine-month period ended September 30, 2023:
| Shares |
Weighted |
Weighted |
Aggregate |
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| Outstanding at December 31, 2022 |
$ | |||||||||||||||
| Granted |
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| Exercised |
( |
) | ||||||||||||||
| Outstanding at September 30, 2023 |
$ | $ | ||||||||||||||
| Exercisable at September 30, 2023 |
$ | $ | ||||||||||||||
| Vested and expected to vest |
$ | $ | $ | |||||||||||||
On June 7, 2023, the Company granted options to its directors for the purchase of
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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 corresponding with the expected term of the option. The expected term is estimated based on historical option exercise activity.
During the nine-month period ended September 30, 2023 and 2022, the total intrinsic value of all options exercised was approximately $
RSUs
The following table summarizes information about RSU activity during the nine-month period ended September 30, 2023:
| Restricted |
Weighted Average |
|||||||
| Non-vested RSUs outstanding at December 31, 2022 |
$ | |||||||
| Awarded |
||||||||
| Shares vested |
( |
) | ||||||
| Shares forfeited |
( |
) | ||||||
| Non-vested RSUs outstanding at September 30, 2023 |
$ | |||||||
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 period ended September 30, 2023 and 2022,
As of September 30, 2023, the Company had approximately $
| (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, |
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| 2023 |
2022 |
|||||||
| Raw materials |
$ | $ | ||||||
| Work in process |
||||||||
| Finished goods |
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| Total inventory |
$ | $ | ||||||
| (9) |
Property, Plant and Equipment |
Property, plant, and equipment consist of the following (in thousands):
| September 30, |
December 31, |
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| 2023 |
2022 |
|||||||
| Land and improvements |
$ | $ | ||||||
| Buildings and improvements |
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| Leasehold improvements |
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| Machinery & equipment |
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| Furniture, fixtures, computers & software |
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| Construction in progress |
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| Property, plant and equipment |
$ | $ | ||||||
| Accumulated depreciation and amortization |
( |
) | ( |
) | ||||
| Net property, plant and equipment |
$ | $ | ||||||
| (10) |
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.
ROU assets and lease liabilities consist of the following (in thousands):
| September 30, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Operating lease ROU assets |
$ | $ | ||||||
| Finance lease ROU assets |
||||||||
| Total ROU assets |
$ | $ | ||||||
| Operating lease liabilities, current |
$ | $ | ||||||
| Finance lease liabilities, current |
||||||||
| Total lease liabilities, current |
$ | $ | ||||||
| Operating lease liabilities, long-term |
$ | $ | ||||||
| Finance lease liabilities, long-term |
||||||||
| Total lease liabilities, long-term |
$ | $ | ||||||
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| ($ in thousands) |
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| 2023 |
2022 |
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| Lease Cost: |
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| Finance lease cost: |
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| Amortization of right of use assets |
$ | $ | ||||||
| Interest on lease liabilities |
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| Operating lease cost |
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| Variable lease cost |
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| Short-term lease cost |
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| Total lease cost |
$ | $ | ||||||
| Nine Months Ended |
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| September 30, |
||||||||
| ($ in thousands) |
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| 2023 |
2022 |
|||||||
| Cash paid for amounts included in measurement of lease liabilities: |
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| Operating cash flows from operating leases |
$ | $ | ||||||
| Financing cash flows from finance leases |
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| Weighted-average remaining lease term (years): |
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| Finance |
||||||||
| Operating |
||||||||
| Weighted-average discount rate: |
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| Finance |
% | % | ||||||
| Operating |
% | % | ||||||
The aggregate future lease payments for leases as of September 30, 2023 are as follows (in thousands):
| Operating |
Finance |
|||||||
| Remainder of 2023 |
$ | $ | ||||||
| 2024 |
||||||||
| 2025 |
||||||||
| 2026 |
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| 2027 |
||||||||
| Thereafter |
||||||||
| Total lease payments |
||||||||
| Less: Interest |
( |
) | ( |
) | ||||
| Present value of lease liabilities |
$ | $ | ||||||
| (11) | 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):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Basic weighted average common shares outstanding | ||||||||||||||||
| Weighted average common equivalent shares due to restricted stock, stock options and RSUs | ||||||||||||||||
| Diluted weighted average common shares outstanding | ||||||||||||||||
The computation of diluted earnings 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 income per share because the effect would be antidilutive. For the three- and nine-month period ended September 30, 2023, the number of stock options excluded from the computation of diluted earnings per share for this reason was
| (12) | Segment Reporting |
The Company consists of a operating and reportable segment.
Revenues shipped to customers outside of the United States comprised approximately
customer comprised
At September 30, 2023,
Approximately
The Company’s products are primarily sold to customers within the Medical, Aerospace & Defense, Automotive, and Industrial/Other markets. Net sales by market for the three- and nine-month periods ended September 30, 2023 and 2022 are as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| Market | Net Sales | % | Net Sales | % | Net Sales | % | Net Sales | % | ||||||||||||||||||||||||
| Medical | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Aerospace & Defense | % | % | % | % | ||||||||||||||||||||||||||||
| Automotive | % | % | % | % | ||||||||||||||||||||||||||||
| Industrial / Other | % | % | % | |||||||||||||||||||||||||||||