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What changed in UFP TECHNOLOGIES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of UFP TECHNOLOGIES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+157 added−177 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-16)

Top changes in UFP TECHNOLOGIES INC's 2023 10-K

157 paragraphs added · 177 removed · 105 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIts talent management program provides feedback on performance, identifies employees with potential for advancement, and allows for personalized career development plans. The Company’s commitment to its employees has resulted in several national, regional, and local “Best in Class” awards. Safety As an essential manufacturing company, the Company takes its responsibility to our essential employees’ health and safety seriously.
Biggest changeIts talent management program provides feedback on performance, identifies employees with potential for advancement, and allows for personalized career development plans.
The Company sells its products into distinct markets with its primary focus on the medical market: ● MedTech – The global medical market is large, growing, and varied but the Company targets and operates in specific segments where its design and manufacturing expertise and access to highly specialized materials helps customers differentiate products, improve patient outcomes, and increase their client’s speed to market.
The Company sells its products into distinct markets with its primary focus on the MedTech market: ● MedTech – The global medical market is large, growing, and varied but the Company targets and operates in specific segments where its design and manufacturing expertise and access to highly specialized materials helps customers differentiate products, improve patient outcomes, and increase their client’s speed to market.
Applications include acoustic insulation, interior trim, load floors, sunshades, SUV cargo cover handles, driveshaft damping, engine & manifold covers, quarter panels and wheel liners. ● Aerospace & Defense – With regard to the aerospace market, molded composites for commercial aviation to make planes lighter and safer.
Applications include acoustic insulation, interior trim, load floors, sunshades, SUV cargo cover handles, driveshaft damping, engine & manifold covers, quarter panels and wheel liners. ● Aerospace & Defense – With regard to the aerospace market, molded composites for commercial aviation make planes lighter and safer.
Any delay or interruption in the supply of raw materials could have a material adverse effect on the Company’s business. Research and Development The Company’s engineering personnel continuously explore design and manufacturing techniques, as well as new and innovative materials to meet the unique demands and specifications of its customers.
Any delay or interruption in the supply of raw materials could have a material adverse effect on the Company’s business. Research and Development The Company’s engineering personnel continuously explore new design and manufacturing techniques, as well as new and innovative materials to meet the unique demands and specifications of its customers.
Products can be used on a stand-alone basis or bonded to another foam product or other material such as a corrugated medium. 6 The Company does not manufacture any of the raw materials used in its products. With the exception of certain grades of cross-linked foam and technical polyurethane foams, these raw materials are available from multiple supply sources.
Products can be used on a stand-alone basis or bonded to another foam product or other material such as a corrugated medium. The Company does not manufacture any of the raw materials used in its products. With the exception of certain grades of cross-linked foam and technical polyurethane foams, these raw materials are available from multiple supply sources.
Laminated products for medical, military, and personal comfort and protection are produced through a process whereby the foam medium is heated to the melting point. The heated foam is then typically bonded to a non-foam material through the application of mechanical pressure. The Company also engineers components for automotive use as interior trim and structural applications.
Laminated products for medical, military, and personal comfort and protection are produced through a process whereby the foam medium is heated to the melting point and the heated foam is typically bonded to a non-foam material through the application of mechanical pressure. The Company also engineers components for automotive use as interior trim and structural applications.
The Company markets through websites, trade shows and expositions, social media, online advertising, emails, and press releases. Its relationships with key material suppliers are also an important part of its marketing and sales efforts. The Company markets and sells its products in the principally through a direct sales force.
The Company markets through websites, trade shows and expositions, social media, online advertising, emails, and press releases. Its relationships with key material suppliers are also an important part of its marketing and sales efforts. The Company markets and sells its products principally through a direct sales force.
The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding the Company and other issuers that file electronically with the SEC. The SEC’s Internet website address is http://www.sec.gov . 4 Market Overview The applications for the Company’s products are numerous and diverse.
The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding the Company and other issuers that file electronically with the SEC. The SEC’s Internet website address is http://www.sec.gov . Market Overview The applications for the Company’s products are numerous and diverse.
The Company partners with OEMs, Tier 1 suppliers, and its own material manufacturers to develop customized solutions to solve automakers’ biggest challenges. ● Aerospace & Defense – With regard to the aerospace market, the Company primarily targets commercial aircraft manufacturers to address the need for improved safety, better fuel economy, lower emissions, and overall passenger comfort.
The Company partners with OEMs, Tier 1 suppliers, and its own material manufacturers to develop customized solutions designed to solve automakers’ biggest challenges. 4 ● Aerospace & Defense – With regard to the aerospace market, the Company primarily targets commercial aircraft manufacturers to address the need for improved safety, better fuel economy, lower emissions, and overall passenger comfort.
The Company has a total of 18 active patents relating to technologies including foam, packaging, tool control technologies, radio frequency welding, automotive superforming processes and certain nail file technologies. The Company also has patent applications in process.
The Company has a total of 19 active patents relating to technologies including foam, packaging, tool control technologies, radio frequency welding, automotive superforming processes and certain nail file technologies. The Company also has patent applications in process.
The Company’s single-use and single-patient devices and components are used in a wide range of medical devices and packaging for minimally invasive surgery, infection prevention, wound care, wearables, orthopedic soft goods, and orthopedic implants. The Company is diversified by also providing highly engineered products and components to customers in the automotive, aerospace and defense, and industrial markets.
The Company’s single-use and single-patient devices and components are used in a wide range of medical devices and packaging for minimally invasive surgery, infection prevention, surfaces and support, wound care, wearables, orthopedic soft goods, and orthopedic implants. The Company is diversified by also providing highly engineered products and components to customers in the automotive, aerospace and defense, and industrial/other markets.
Plastics and other materials are sealed using radio frequency and impulse welding. Reticulated polyurethane foam is also used for many high-performance medical products requiring precision fluid or air management. These products are typically fabricated using high speed die-cutting or waterjet cutting.
Thin films and other materials are sealed using radio frequency and impulse welding. Reticulated polyurethane foam is also used for many high-performance medical products requiring precision fluid or air management. These products are typically fabricated using high speed die-cutting or waterjet cutting.
Examples include air and liquid filters, thermal & acoustic insulation, seals, and gaskets. Products The Company’s custom products are targeted at macro market trends and create specific opportunities in niche segments where the Company’s access to specialty materials, engineering know-how, and processing expertise can be leveraged to create value for its customers.
Examples include air and liquid filters, thermal and acoustic insulation, seals and gaskets, and comfort gear for sports equipment. Products The Company’s custom products are targeted at macro market trends and create specific opportunities in niche segments where the Company’s access to specialty materials, engineering know-how, and processing expertise can be leveraged to create value for its customers.
Examples of its custom products targeted to specific markets include: ● MedTech – Protective drapes for robotic surgery, single patient use surfaces, advanced wound care, infection prevention, disposables for surgical and endoscopic procedures, packaging for orthopedic implants, orthopedic appliances, biopharma drug manufacturing and coils for catheters.
Examples of its custom products targeted to specific markets include: ● MedTech – Protective drapes for robotic surgery, single patient use surfaces, advanced wound care, infection prevention, disposables for surgical and endoscopic procedures, packaging for medical devices, orthopedic implants, biopharma drug manufacturing, and dispenser coils for catheters.
There can be no assurance that any patent or patent application will provide significant protection for the Company’s products and technology or will not be challenged or circumvented by others. The expiration dates for the Company’s patents range from 2023 through 2039.
There can be no assurance that any patent or patent application will provide significant protection for the Company’s products and technology or will not be challenged or circumvented by others. The expiration dates for the Company’s patents range from 2024 through 2040.
ITEM 1. BUSINESS The Company is a design, engineering, and custom manufacturer of comprehensive solutions for medical devices, sterile packaging, and other highly engineered custom products. The Company is an important link in the medical device supply chain and a valued outsource partner to many of the top medical device manufacturers in the world.
ITEM 1. BUSINESS The Company is a designer and custom manufacturer of comprehensive solutions for medical devices, sterile packaging, and other highly engineered custom products. The Company believes it is an important link in the medical device supply chain and a valued outsource partner to many of the top medical device manufacturers in the world.
The Company’s commercial leaders, in conjunction with Company engineers, collaborate with customers and in-house design and manufacturing experts to develop custom-engineered solutions on a cost-effective basis. For the year ended December 31, 2022, one customer’s sales were approximately 21% of total sales; no other customer’s sales exceeded 10% of total sales.
The Company’s commercial sales force, in conjunction with Company engineers, collaborate with customers and in-house design and manufacturing experts to develop custom-engineered solutions on a cost-effective basis. For the year ended December 31, 2023, one customer’s sales were approximately 28% of total sales; no other customer’s sales exceeded 10% of total sales.
Seasonality is not a major factor in the Company’s sales. See the Company’s consolidated financial statements contained in Part IV, Item 15, of this Report for net sales by market. Manufacturing The Company’s manufacturing operations consist primarily of cutting, routing, compression and injection, molding, vacuum-forming, laminating, radio frequency and impulse welding and assembling.
See the Company’s consolidated financial statements contained in Part IV, Item 15, of this Report for net sales by market. Manufacturing The Company’s manufacturing operations consist primarily of cutting, routing, compression and injection, molding, vacuum-forming, laminating, radio frequency and impulse welding and assembling.
These SEC reports can be accessed through the investor relations section of the Company’s website. The information found on the Company’s website is not part of this or any other report filed with or furnished to the SEC.
These SEC reports can be accessed through the investor relations section of the Company’s website. The information found on the Company’s website is not incorporated by reference in this or any other report filed with or furnished to the SEC.
The product segments we target and operate in include; infection control, orthopedics, interventional & surgical, surfaces & support, therapeutics, diagnostics, wound care, and biopharma. ● Automotive – Automotive companies are challenged with creating quieter, safer and more efficient vehicles.
The product segments we target, and within which we operate, include minimally invasive surgery, infection control, orthopedics, interventional & surgical, surfaces & support, therapeutics, diagnostics, wound care, and biopharma. ● Automotive – Automotive companies are challenged with creating quieter, safer and more efficient vehicles.
In addition, the Company bales and disposes of certain of its urethane foam scrap for use in the carpeting industry. The Company’s Newburyport, MA facility utilizes solar power to provide approximately 11% of its electricity, with plans to increase capacity in the future. The Company is aware of public support for environmentally-responsible packaging and products.
In addition, the Company bales and disposes of certain of its urethane and cross-linked foam scrap for use in various recycled products. The Company’s Newburyport, MA facility utilizes solar power to provide approximately 6% of its electricity, with plans to increase capacity in the future. The Company is aware of public support for environmentally responsible packaging and products.
Patents and Other Proprietary Rights The Company relies upon trade secrets, patents, and trademarks to protect its technology and proprietary rights. The Company believes the improvement of existing products, reliance upon trade secrets and unpatented proprietary know-how, and the development of new products are generally as important as patent protection in establishing and maintaining a competitive advantage.
The Company believes the improvement of existing products, reliance upon trade secrets and unpatented proprietary know-how, and the development of new products are generally as important as patent protection in establishing and maintaining a competitive advantage.
Human Capital Management As of January 28, 2023, the Company had a total of 2665 full-time employees (compared to 1828 full-time employees as of January 29, 2022) and 303 temporary employees (compared to 187 temporary employees at January 29, 2022). The Company is not a party to any collective bargaining agreements. The Company considers its employee relations to be good.
Human Capital Management As of January 27, 2024, the Company had a total of 3,093 full-time employees (compared to 2,665 full-time employees as of January 28, 2023) and 200 temporary employees (compared to 303 temporary employees at January 28, 2023). The Company is not a party to any collective bargaining agreements. The Company considers its employee relations to be good.
Its corporate safety officer reports directly to the SVP of HR and works with dedicated safety officers at each of our plants to implement safety programs and training. Safety audits are conducted regularly to ensure compliance.
Safety As an essential manufacturing company, the Company takes its responsibility to our essential employees’ health and safety seriously. Its corporate safety officer reports directly to the SVP of HR and works with dedicated safety officers at each of our plants to implement safety programs and training. Safety audits are conducted regularly to ensure compliance.
The Company expects to compete effectively in the engineered products market due to its ability to address its customers' primary vendor selection criteria, including price, product performance, product reliability, and customer service, as well as its access to a wide variety of materials, its engineering expertise, its ability to combine foams with other materials such as plastics and laminates, and its ability to manufacture products in a clean room environment.
The Company expects to compete effectively in the engineered products market due to its ability to address its customers' primary vendor selection criteria, including inclusion on their preferred supplier lists, price, product performance, product reliability, and customer service, as well as its access to a wide variety of materials, its engineering expertise, its ability to combine foams with other materials such as plastics and laminates, and its ability to manufacture products in a clean room environment. 6 Patents and Other Proprietary Rights The Company relies upon trade secrets, patents, and trademarks to protect its technology and proprietary rights.
This commitment is reflected in our efforts to attract, engage, and retain the best people possible. Compensation and Benefits The Company’s compensation and benefits offerings are supported by regular third-party benchmarking surveys. In addition to competitive compensation practices, the Company offers annual stock award bonus programs to reward and retain executives and key employees.
Compensation and Benefits The Company’s compensation and benefits offerings are supported by regular third-party benchmarking surveys. In addition to competitive compensation practices, the Company offers annual stock award bonus programs to reward and retain executives and key employees.
With regard to the defense market, as a long-time supplier to military defense contractors and law enforcement, the Company provides highly innovative solutions to ensure soldier safety, improve comfort, and protect mission critical equipment. ● Consumer & Electronics –For sports and leisure, the Company is an innovator in comfort cushioning for helmets and other protective gear. ● Industrial – The applications for the Company’s industrial products are highly diverse.
With regard to the defense market, as a long-time supplier to military defense contractors and law enforcement, the Company provides highly innovative solutions to enhance soldier safety, improve comfort, and protect mission critical equipment. ● Industrial/Other – The applications for the Company's industrial and other products are highly diverse.
All significant inter-company balances and transactions have been eliminated in consolidation. FlexShield®, FirmaLite®, Winepacks®, BioShell®, T-Tubes®, Tri-Covers®, Erasables®, Design Nail®, Pro-Sticks®, Cryoshell® Case Fit®, Alloshell®, ControlClean®, Flash Shiner® and Mambo® are our U.S. registered trademarks. Each trademark, trade name, or service mark of any other company appearing in this Report belongs to its respective holder.
FlexShield®, FirmaLite®, BioShell®, T-Tubes®, Tri-Covers®, Design Nail®, Pro-Sticks®, Cryoshell® Case Fit®, Alloshell®, Flash Shiner®, Mambo®, and EZ Card® are the Company’s U.S. registered trademarks. Each trademark, trade name, or service mark of any other company appearing in this Report belongs to its respective holder.
Typical applications of its products include military uniform and gear components, automotive interior trim, air filtration, and protective cases and inserts. The Company was incorporated in the State of Delaware in 1993.
Typical applications of its products include military uniform and gear components, automotive interior trim, air filtration, and protective cases and inserts. The Company was incorporated in the State of Delaware in 1993. The consolidated financial statements of the Company include the accounts and results of operations of UFP Technologies, Inc. and its wholly owned subsidiaries.
The Company’s compliance hotline is maintained for the confidential reporting of any suspected policy violations or unethical business conduct. 7 The Company’s commitment to its employees starts at the top with an executive-level officer – Senior Vice President of Human Resources (“SVP of HR”) – reporting to the CEO, attending all board meetings, and having significant involvement with the board’s compensation committee.
The Company’s commitment to its employees starts at the top with an executive-level officer – Senior Vice President of Human Resources (“SVP of HR”) – reporting to the CEO, attending all board meetings, and having significant involvement with the board’s compensation committee. This commitment is reflected in our efforts to attract, engage, and retain the best people possible.
Available Information The Company’s Internet website address is http://www.ufpt.com.
All significant intercompany balances and transactions have been eliminated in consolidation. Available Information The Company’s Internet website address is http://www.ufpt.com.
With regard to the defense market, molded composites for military gear to improve the safety and comfort of soldiers.
With regard to the defense market, molded composites for military gear improve the safety and comfort of soldiers. Applications include backpack components, knee and elbow pads, eyewear, and helmets. In addition, the Company supplies r eusable cases and custom inserts to quickly and safely transport, store, and deploy mission-critical equipment.
Removed
The consolidated financial statements of the Company include the accounts and results of operations of UFP Technologies, Inc. and its wholly-owned subsidiaries, Advant Medical Limited, and its wholly-owned subsidiary Munlu Leighis Advant Teoranta, Advant Costa Rica Limitada, Advant Medical Inc. (collectively “Advant Medical”), Dielectrics, Inc. (“Dielectrics”), Moulded Fibre Technology, Inc.
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For additional information, see “Risk Factors— We depend on a small number of customers for a large percentage of our revenues.
Removed
(“Molded Fiber”) (partial year; entity was sold in July 2022), Contech Medical, Inc.
Added
The loss of any such customer, a reduction in sales to any such customer, or the decline in the financial condition of any such customer could have a material adverse effect on our business, financial condition, and results of operations.” 5 Seasonality is not a major factor in the Company’s sales.
Removed
(“Contech”), DAS Medical Holdings, LLC (“DAS Medical”), and DAS Medical’s wholly-owned subsidiaries, Sterimed, LLC, One Degree Medical Holdings, LLC, DAS Medical Corporation, and its wholly-owned subsidiary DAS Medical International, S.R.L., Simco Industries, Inc., and UFP Realty LLC (“UFP Realty”), and UFP Realty’s wholly-owned subsidiaries, UFP MA, LLC, UFP CO, LLC, UFP FL, LLC, UFP TX, LLC, UFP MI, LLC, and UFP IA, LLC.
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The Company’s compliance hotline is maintained for the confidential reporting of any suspected policy violations or unethical business conduct.
Removed
Applications include backpack components, knee and elbow pads, eyewear, and helmets. ● Consumer and Electronic Packaging – 100% recycled protective packaging for business-to-consumer brands primarily focused on electronics, candles, wine, and other high-volume consumer products using the “next day” carrier infrastructure. 5 ● Specialty Case Solutions – Reusable cases and custom inserts to quickly and safely transport, store, and deploy mission-critical equipment.
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Its summer internship program provides the opportunity for college and technical school students to demonstrate and develop the skills to become valuable members of our team. 7 The Company’s commitment to its employees has resulted in several national, regional, and local “Best in Class” awards.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe are also exposed to the risk of increasing interest rates as our revolving credit and term loan facilities are both at a variable interest rate. Any material changes in interest rates could result in higher interest expense and related payments for us.
Biggest changeThe breach of any of these covenants or restrictions could result in a default under the Credit Agreement, which could have a material adverse impact to our business, financial condition, and results of operation. 14 We are also exposed to the risk of increasing interest rates as our revolving credit and term loan facilities are both at a variable interest rate.
In addition, intellectual property litigation or claims could force us to do one or more of the following: 12 ● Cease selling or using any of our products that incorporate the asserted intellectual property, which would adversely affect our revenues; ● Pay substantial damages for past use of the asserted intellectual property; ● Obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and/or ● Redesign or rename, in the case of trademark claims, our products to avoid infringing the intellectual property rights of third parties, which may be costly and time-consuming, even if possible.
In addition, intellectual property litigation or claims could force us to do one or more of the following: ● Cease selling or using any of our products that incorporate the asserted intellectual property, which would adversely affect our revenues; ● Pay substantial damages for past use of the asserted intellectual property; ● Obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and/or ● Redesign or rename, in the case of trademark claims, our products to avoid infringing the intellectual property rights of third parties, which may be costly and time-consuming, even if possible.
Our business strategy includes the potential acquisition of businesses and other business combinations that we expect will complement and expand our business. In addition, we may also pursue other strategic relationships or opportunities. We may not be able to success‐fully identify suitable acquisition or other strategic opportunities or complete any particular acquisition, combina‐tion, or other transaction on acceptable terms.
Our business strategy includes the acquisition of businesses and other business combinations that we expect will complement and expand our business. In addition, we may also pursue other strategic relationships or opportunities. We may not be able to success‐fully identify suitable acquisition or other strategic opportunities or complete any particular acquisition, combina‐tion, or other transaction on acceptable terms.
Reductions in the availability of energy supplies or an increase in energy costs may increase our operating costs. We use electricity and natural gas at our manufacturing facilities to operate our equipment. Over the past several years, prices for electricity and natural gas have fluctuated significantly.
Reductions in the availability of energy supplies or an increase in energy costs may increase our operating costs. We primarily use electricity and natural gas at our manufacturing facilities to operate our equipment. Over the past several years, prices for electricity and natural gas have fluctuated significantly.
Depending on the market, these risks include those relating to: ● Changes in the local economic environment including, among other things, labor cost increases and other general inflationary pressures; ● Political instability, armed conflicts, or terrorism; ● Public health crises, such as pandemics or epidemics, including the Covid-19 pandemic; ● Social changes; ● Intellectual property legal protections and remedies; ● Trade regulations; ● Procedures and actions affecting approval, production, pricing, reimbursement and marketing of products and services; ● Foreign currency; ● Additional U.S. and foreign taxes; ● Export controls; ● Antitrust and competition laws and regulations; ● Lack of reliable legal systems which may affect our ability to enforce contractual rights; ● Changes in local laws or regulations, or interpretation or enforcement thereof; ● Potentially longer ramp-up times for starting up new operations, and for payment and collection cycles; ● Financial, operational and information technology systems integration; ● Failure to comply with U.S. laws, such as the foreign corrupt practices act, or local laws that prohibit us, our partners, or our partners’ or our agents or intermediaries from making improper payments to foreign officials or any third party for the purpose of obtaining or retaining business; and ● Data and privacy restrictions. 13 Issues relating to the failure to comply with applicable non-U.S. laws, requirements or restrictions may also impact our domestic business and increase scrutiny of our domestic practices.
Depending on the market, these risks include those relating to: ● Changes in the local economic environment including, among other things, labor cost increases and other general inflationary pressures; 13 ● Political instability, armed conflicts, or terrorism; ● Public health crises, such as pandemics or epidemics; ● Social changes; ● Intellectual property legal protections and remedies; ● Trade regulations; ● Procedures and actions affecting approval, production, pricing, reimbursement and marketing of products and services; ● Foreign currency; ● Additional U.S. and foreign taxes; ● Export controls; ● Antitrust and competition laws and regulations; ● Lack of reliable legal systems which may affect our ability to enforce contractual rights; ● Changes in local laws or regulations, or interpretation or enforcement thereof; ● Potentially longer ramp-up times for starting up new operations, and for payment and collection cycles; ● Financial, operational and information technology systems integration; ● Failure to comply with U.S. laws, such as the foreign corrupt practices act, or local laws that prohibit us, our partners, or our partners’ or our agents or intermediaries from making improper payments to foreign officials or any third party for the purpose of obtaining or retaining business; and ● Data and privacy restrictions. ● Foreign currency fluctuations Issues relating to the failure to comply with applicable non-U.S. laws, requirements or restrictions may also impact our domestic business and increase scrutiny of our domestic practices.
We are currently unable to predict the extent, nature or duration of any of these occurrences. We depend on a small number of customers for a large percentage of our revenues.
We are currently unable to predict the extent, nature or duration of any of these occurrences. 8 We depend on a small number of customers for a large percentage of our revenues.
The issuance of preferred stock, while providing flexibility in connection with possible financings, acquisitions, and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. We have no present plans to issue shares of preferred stock.
The issuance of preferred stock, while providing flexibility in connection with possible financings, acquisitions, and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. We currently have no plans to issue shares of preferred stock.
If we fail to comply with specific provisions in our customer contracts or Food and Drug Administration (FDA) regulations, our business could be materially adversely affected. Our customer contracts, particularly with respect to contracts for which the government is a direct or indirect customer, may include unique and specialized requirements.
If we fail to comply with specific provisions of our customer contracts or Food and Drug Administration (FDA) regulations, our business could be materially adversely affected. Our customer contracts, particularly with respect to contracts for which the government is a direct or indirect customer, may include unique and specialized requirements.
Fluctuations in the supply of components and raw materials we use in manufacturing our products could cause production delays or reductions in the number of products we manufacture, which could materially adversely affect our business, financial condition, and results of operations. Our business is subject to the risk of periodic shortages of raw materials.
Disruptions in the supply of components and raw materials we use in manufacturing our products could cause production delays or reductions in the number of products we manufacture, which could materially adversely affect our business, financial condition, and results of operations. Our business is subject to the risk of periodic shortages of raw materials.
No one customer’s sales exceeded 10% of total sales for the years ended December 31, 2021 and 2020. The loss of a significant portion of our expected future sales to any of our large customers would have a material adverse effect on our business, financial condition, and results of operations.
No one customer’s sales exceeded 10% of total sales for the year ended December 31, 2021. The loss of a significant portion of our expected future sales to any of our large customers would have a material adverse effect on our business, financial condition, and results of operations.
These include provisions that classify our board of directors, limit the ability of stockholders to take action by written consent, call special meetings, remove a director for cause, amend the bylaws, or approve a merger with another company.
These include provisions that limit the ability of stockholders to take action by written consent, call special meetings, remove a director for cause, amend the bylaws, or approve a merger with another company.
Any such compromise of our data security and access, public disclosure, or loss of personal or confidential business information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption of our operations, damage to our reputation, loss of our customers’ willingness to transact business with us, and subject us to additional costs and liabilities which could materially adversely affect our business. 11 We may be unable to protect our proprietary technology from infringement.
Any such compromise of our data security and access, public disclosure, or loss of personal or confidential business information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption of our operations, damage to our reputation, loss of our customers’ willingness to transact business with us, and subject us to additional costs and liabilities which could materially adversely affect our business.
We expect those inflationary trends to continue for the foreseeable future. These inflationary pressures have affected our manufacturing costs, operating expenses (including wages) and other expenses. We may not be able to pass these cost increases on to our customers in a timely manner, which could have an impact on our gross margins and profitability.
These inflationary pressures have affected our manufacturing costs, operating expenses (including wages) and other expenses. We may not be able to pass these cost increases on to our customers in a timely manner, which could have an impact on our gross margins and profitability.
While we believe that we have developed strong relationships with these suppliers, any failure or delay by such suppliers in supplying us these necessary products could adversely affect our ability to manufacture and deliver products on a timely and competitive basis.
While we believe that we have developed strong relationships with these suppliers, any failure or delay by such suppliers in supplying us these necessary products could adversely affect our ability to manufacture and deliver products on a timely and competitive basis. We may be unable to protect our proprietary technology from infringement.
We cannot predict the broader or longer-term consequences of the conflict or of the sanctions imposed to date or in the future, which could include embargoes, regional instability, geopolitical shifts, exchange rate fluctuations, financial market disruptions and economic recession.
The military conflict and related sanctions could damage or disrupt international commerce and the global economy. We cannot predict the broader or longer-term consequences of the conflict or of the sanctions imposed to date or in the future, which could include embargoes, regional instability, geopolitical shifts, exchange rate fluctuations, financial market disruptions and economic recession.
Our products could infringe the intellectual property rights of others, which may lead to litigation that could itself be costly, result in the payment of substantial damages or royalties, and prevent us from using technology that is essential to our products.
In such a case, our business, financial condition, and results of operations may be materially adversely affected. 12 Our products could infringe the intellectual property rights of others, which may lead to litigation that could itself be costly, result in the payment of substantial damages or royalties, and prevent us from using technology that is essential to our products.
In addition, these products may not meet their performance specifications under all conditions or for all applications. If, despite internal testing and testing by customers, any of our products contain errors or defects or fail to meet applicable specifications, then we may be required to enhance or improve those products or technologies.
If, despite internal testing and testing by customers, any of our products contain errors or defects or fail to meet applicable specifications, then we may be required to enhance or improve those products or technologies.
For example, if we are unable to maintain the proprietary nature of our technologies, our profit margins could be reduced as competitors could more easily imitate our products, possibly resulting in lower prices or lost sales for certain products. In such a case, our business, financial condition, and results of operations may be materially adversely affected.
For example, if we are unable to maintain the proprietary nature of our technologies, our profit margins could be reduced as competitors could more easily imitate our products, possibly resulting in lower prices or lost sales for certain products.
In addition, our suppliers may acquire or develop the capability and desire to compete with us. If our suppliers choose to expand their own operations, through acquisitions or otherwise, and begin manufacturing and selling products directly to our customers, it could reduce our pricing or sales volume and overall profitability.
If our suppliers choose to expand their own operations, through acquisitions or otherwise, and begin manufacturing and selling products directly to our customers, it could reduce our pricing or sales volume and overall profitability.
Our top ten customers represented approximately 47%, 34%, and 38% of our total revenues in 2022, 2021, and 2020, respectively. One customer comprised approximately 21% of our total sales for the year ended December 31, 2022; no other customer’s sales exceeded 10% of our total sales for the year ended December 31, 2022.
Our top ten customers represented approximately 59%, 47%, and 34% of our total revenues in 2023, 2022, and 2021, respectively. One customer comprised approximately 28% of our total sales for the year ended December 31, 2023; that same customer comprised approximately 21% of our total sales for the year ended December 31, 2022.
In addition, our bylaws set forth advance notice procedures for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders. 14 We are subject to the provisions of Section 203 of the Delaware General Corporation Law which prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stock‐holder, unless the business combination is approved in a prescribed manner.
We are subject to the provisions of Section 203 of the Delaware General Corporation Law which prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stock‐holder, unless the business combination is approved in a prescribed manner.
Likewise, a material adverse change in the financial condition of any of these customers could have a material adverse effect on our ability to collect accounts receivable from any such customer. One customer represented approximately 10% of gross accounts receivable for both years ended December 31, 2022 and 2021.
Likewise, a material adverse change in the financial condition of any of these customers could have a material adverse effect on our ability to collect accounts receivable from any such customer.
Increased competition for the sales of our products could result in price reductions, reduced margins, and loss of market share, which could materially adversely affect our prospects, business, financial condition and results of operations.
Increased competition for the sales of our products could result in price reductions, reduced margins, and loss of market share, which could materially adversely affect our prospects, business, financial condition and results of operations. 11 Security breaches, including cybersecurity incidents and other disruptions could compromise our information, expose us to liability and harm our reputation and business.
Provisions of our corporate charter documents and Delaware law, may dissuade potential acquirers, prevent the replacement or removal of our current management, and may thereby affect the price of our common stock.
Any material changes in interest rates could result in higher interest expense and related payments for us. Provisions of our corporate charter documents and Delaware law, may dissuade potential acquirers, prevent the replacement or removal of our current management, and may thereby affect the price of our common stock.
Risks Related to our Business Our business, operating results, and cash flows have been affected and may continue to be adversely affected by the rising rate of inflation. Inflationary pressures have increased due to general macroeconomic factors as well as the global supply chain disruptions, labor shortages and other impacts of the ongoing effects of the COVID-19 pandemic.
Risks Related to our Business Our business, operating results, and cash flows have been affected and may continue to be adversely affected by inflation. Inflationary pressures have increased due to general macroeconomic factors as well as the global supply chain disruptions and labor shortages. Although inflation rates have somewhat normalized, rates could again rise in the foreseeable future.
As a result of the ongoing military conflict between Russia and Ukraine, the United States and other countries have imposed significant sanctions on Russia and could impose even wider sanctions. The military conflict and related sanctions could damage or disrupt international commerce and the global economy.
The ongoing conflict between Russia and Ukraine and the related implications could have a material adverse effect on our business and results of operations. As a result of the ongoing military conflict between Russia and Ukraine, the United States and other countries have imposed significant sanctions on Russia and could impose even wider sanctions.
General Risk Factors We are subject to a variety of federal, state and local laws and regulations, including health and safety laws and regulations, and the cost of complying, or our failure to comply, with such requirements could materially adversely affect our business, financial condition and results of operations.
Estimating the future performance of our business is extremely challenging and the range of deviation from internal estimates could be more significant in this environment. 16 General Risks We are subject to a variety of federal, state and local laws and regulations, including health and safety laws and regulations, and the cost of complying, or our failure to comply, with such requirements could materially adversely affect our business, financial condition and results of operations.
In addition, inflation has resulted in higher interest rates and could otherwise adversely impact the macroeconomic environment, which in turn could adversely impact our customers and their ability or willingness to purchase our products.
In addition, inflation has resulted in higher interest rates and could otherwise adversely impact the macroeconomic environment, which in turn could adversely impact our customers and their ability or willingness to purchase our products. Our inability to successfully manage the effects of inflation could have a material adverse effect on our business, results of operations and cash flows.
Product liability claims could divert management's attention from our core business, be expensive to defend and result in sizable damage awards against us. 9 New technologies could result in the development of new products by our competitors and a decrease in demand for our products, which could materially adversely affect our business, financial condition and results of operations.
New technologies could result in the development of new products by our competitors and a decrease in demand for our products, which could materially adversely affect our business, financial condition and results of operations.
There is substantial competition to attract such employees, and the loss of any such key employees could have a material adverse effect on our business and operating results.
There is substantial competition to attract such employees, and the loss of any such key employees could have a material adverse effect on our business and operating results. The same could be true if we were to experience a high turnover rate among sales, engineering and technical personnel and we were unable to replace them.
Our business could be harmed if our products contain undetected errors or defects or do not meet applicable specifications. Based on customer specifications, we are continuously developing new products and improving existing products. Our existing and newly introduced products can contain undetected errors or defects.
Based on customer specifications, we are continuously developing new products and improving existing products. Our existing and newly introduced products can contain undetected errors or defects. In addition, these products may not meet their performance specifications under all conditions or for all applications.
The Credit Agreement also requires us to meet certain financial ratios, including a minimum fixed-charge coverage ratio and a maximum total funded debt to EBITDA ratio. The breach of any of these covenants or restrictions could result in a default under the Credit Agreement, which could have a material adverse impact to our business, financial condition, and results of operation.
The Credit Agreement also requires us to meet certain financial ratios, including a minimum fixed-charge coverage ratio and a maximum total funded debt to EBITDA ratio.
Further, if our products are defectively designed, manufactured, or labeled, contain defective components or are misused, we may become subject to costly litigation by our customers.
Further, if our products are defectively designed, manufactured, or labeled, contain defective components or are misused, we may become subject to costly litigation by our customers or be expected to fund product recalls. Product liability claims could divert management's attention from our core business, be expensive to defend and result in sizable damage awards against us.
Further, any negative publicity related to our failure to comply with the provisions in our customer contracts could have a material adverse effect on our business, financial condition, or results of operations. We may pursue acquisitions or other strategic relationships that involve inherent risks, any of which may cause us to not realize anticipated benefits.
Further, any negative publicity related to our failure to comply with the provisions in our customer contracts could have a material adverse effect on our business, financial condition, or results of operations. 9 Increased focus on our environmental, social, and governance ("ESG") responsibilities have and will likely continue to result in additional costs and risks, and may adversely impact our reputation, employee retention, and willingness of customers and partners to do business with us.
The same could be true if we were to experience a high turnover rate among sales, engineering and technical personnel and we were unable to replace them. 10 We operate in highly competitive industries and we may be unable to compete successfully, which could materially adversely affect our business, financial condition and results of operations.
We operate in highly competitive industries, and we may be unable to compete successfully, which could materially adversely affect our business, financial condition and results of operations. We face intense competition in all markets and in each area of our business, in some cases from our own customers bringing programs in-house.
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Our inability to successfully manage the effects of inflation could have a material adverse effect on our business, results of operations and cash flows. 8 The ongoing conflict between Russia and Ukraine and the related implications could have a material adverse effect on our business and results of operations.
Added
Two customers represented approximately 17% and 12%, respectively, of gross accounts receivable for the year ended December 31, 2023, and one customer represented approximately 10% of gross accounts receivable for the year ended December 31, 2022. Our business could be harmed if our products contain undetected errors or defects or do not meet applicable specifications.
Removed
We face intense competition in all markets and in each area of our business, in some cases from our own customers bringing programs in-house. Our primary competition for our products is from smaller, independent, regional manufacturing companies. Our current competitors may increase their participation in, or new competitors may enter into, the markets in which we compete.
Added
Institutional, individual, and other investors, proxy advisory services, regulatory authorities, consumers and other stakeholders are increasingly focused on ESG practices of companies. Some investors may use these non-financial performance factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies and actions relating to ESG are inadequate.
Removed
The cost of the raw materials we use to manufacture our products, particularly petroleum and petroleum-based raw materials, are subject to escalation and could increase, which may materially adversely affect our business, financial condition, and results of operations.
Added
Our disclosures on these matters, or a failure to meet evolving stakeholder expectations for ESG practices and reporting, may potentially harm our reputation and customer relationships. As ESG best practices and reporting standards continue to develop, we may incur increasing costs relating to ESG monitoring and reporting and complying with ESG initiatives.
Removed
The cost of raw materials, including petroleum and petroleum-based raw materials such as resins, used in the production of our products, represents a significant portion of our direct manufacturing costs.
Added
The standards for tracking and reporting on ESG matters and disclosure frameworks are relatively new, have not been harmonized, and continue to evolve. Ensuring there are systems and processes in place to comply with the various ESG tracking and reporting obligations may require management time and expense.
Removed
Any fluctuations in the price of petroleum, or any other material used in the production of our products, may have a material adverse effect on our business, financial condition, and results of operations. Such price increases could reduce demand for our products.
Added
As we look to respond to evolving standards for identifying, measuring, and reporting ESG metrics, our efforts may result in a significant increase in costs and may nonetheless not meet investor or other stakeholder expectations and evolving standards or regulatory requirements, which may negatively impact our financial results, our reputation, our ability to attract or retain employees, our attractiveness as a supplier, investment, or business partner, or expose us to government enforcement actions, private litigation, and actions by stockholders or stakeholders.
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If we are not able to buy raw materials at fixed prices, or pass on price increases to our customers, we may lose orders or enter into orders with less favorable terms, either of which could have a material adverse effect on our business, financial condition, and results of operations.
Added
In addition, if our competitors’ ESG performance is perceived to be better than ours, potential or current investors may elect to invest with our competitors. Increased focus and evolving views of lawmakers on climate change and other ESG issues could have a long-term impact on our business and result of operations.
Removed
Changes in domestic and global economic conditions, supply chain disruptions, labor shortages, the lingering effects of the COVID-19 pandemic, have led to higher inflation, which, in turn, has led to, and will likely continue to, increase the costs of the raw material we purchase.
Added
Increased public awareness and concern regarding global climate change and other ESG matters may result in more international, regional, and/or federal regulatory or other stakeholder requirements or expectations that could mandate more restrictive or expansive standards, such as more prescriptive reporting of ESG metrics, practices, and targets, or require such changes on a more accelerated time frame.
Removed
“ Risk Factors — Risks Related to our Business — Our business, operating results, and cash flows have been affected and may continue to be adversely affected by the rising rate of inflation .” Further, the global economy has been, and may continue to be, negatively impacted by the ongoing conflict resulting from Russia’s invasion of Ukraine in 2022.
Added
There continues to be a lack of consistent climate and other ESG legislation, which creates economic and regulatory uncertainty; however, there has been an increasing amount of legislative and regulatory activity, particularly in the European Union, United Kingdom, and U.S.
Removed
The negative impacts arising from the conflict and sanctions and export restrictions imposed by various countries, including those imposed by Russia, may include reduced consumer demand, supply chain disruptions, increased cybersecurity risks, and increased costs for transportation, energy, and raw materials.
Added
In addition, there is also an increasing number of state-level anti-ESG initiatives in the U.S. that may conflict with other regulatory requirements, resulting in regulatory uncertainty.
Removed
Although our operations do not take place in Russia or Ukraine further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which may adversely affect our business, financial condition and results of operations.
Added
New or revised legal and regulatory requirements could impose significant operational restrictions and compliance requirements upon the Company or its products, and could negatively impact the Company’s business, capital expenditures, results of operations, financial condition, and competitive position. Global climate change and related regulations and changes in customer demand could negatively affect our operations and our business.
Removed
Please see “ Risk Factors — Risks Related to our Business — The ongoing conflict between Russia and Ukraine and the related implications could have a material adverse effect on our business and results of operations .” Security breaches, including cybersecurity incidents and other disruptions could compromise our information, expose us to liability and harm our reputation and business.
Added
The effects of climate change could create financial risks to our business. For example, the effects of physical impacts of climate change could disrupt our operations by impacting the availability and cost of materials needed for manufacturing, exacerbate existing risks to our supply chain, disrupt our operations, and increase insurance and other operating costs.
Added
These factors may impact our decisions to construct new facilities or maintain existing facilities in areas more prone to physical climate risks. We could also face indirect financial risks passed through the supply chain and disruptions that could result in increased prices for our products and the resources needed to produce them.
Added
The growing focus on addressing global climate change has resulted in more regulations designed to reduce greenhouse gas emissions and more customer demand for products and services that have a lower carbon footprint or that help businesses and consumers reduce carbon emissions throughout their value chains.
Added
We may be required to further increase research and development and other capital expenditures in order to develop offerings that meet these new regulations, standards, and customer demands.
Added
There can be no assurance that our new product development efforts will be successful, that our products will be accepted by the market, or that economic returns will reflect our investments in new product development. 10 We may pursue acquisitions or other strategic relationships that involve inherent risks, any of which may cause us to not realize anticipated benefits.
Added
Our current competitors may increase their participation in, or new competitors may enter into, the markets in which we compete. In addition, our suppliers may acquire or develop the capability and desire to compete with us.
Added
While we maintain insurance for cyber events, our insurance may not be sufficient to cover us against all losses that could potentially result from a breach of our systems or loss of sensitive data.
Added
Consolidation in the healthcare industry could result in greater competition and reduce our revenues and harm our business. Many healthcare industry companies are consolidating to create new companies with greater market power. As the healthcare industry consolidates, competition to provide products and services to industry participants will become more intense.
Added
These industry participants may try to use their market power to negotiate price reductions for our products or may undertake additional vertical integration or supplier diversification initiatives. If we are forced to reduce our prices, our revenues would decrease and our operating results would suffer.
Added
In addition, our bylaws set forth advance notice procedures for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
Added
Financial Risks Our operating results may fluctuate, which may make it difficult to forecast our future performance and may result in volatility in our stock price. Our operating results could fluctuate from quarter to quarter, making forecasting future performance difficult and resulting in volatility in our stock price.
Added
These fluctuations are due to a variety of factors, including the following: ● timing of orders placed by our customers; ● our customers’ approach to inventory management; ● changes in the mix of our revenue represented by our various products and customers could result in reductions in our profits if the mix of our revenue represented by lower margin products increases; ● a portion of our costs are fixed in nature, which results in our operations being particularly sensitive to fluctuations in production volumes; ● increased costs and decreased availability of raw materials or supplies; and ● our ability to effectively execute on operational initiatives to drive manufacturing efficiencies.
Added
Our international sales and operations are subject to a variety of market and financial risks and costs that could affect our profitability and operating results.
Added
Our sales outside the U.S., which accounted for approximately 20.8% of sales for 2023, and our operations in Europe, Mexico, South America and the Caribbean are and could be subject to a number of risks and potential costs, including: ● changes in foreign economic conditions or regulatory requirements; ● changes in foreign currency exchange rates; ● local product preferences and product requirements; ● difficulties in enforcing agreements through foreign legal systems; ● less protection of intellectual property in some countries outside of the U.S.; 15 ● trade protection measures and import and export licensing requirements; ● work force instability; ● political and economic instability; ● transportation delays or interruptions; and ● complex tax and cash management issues.
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These risks are also present in connection with our entry into new geographic markets. Additionally, as a result of our international operations, we are subject to exposure from currency exchange rate fluctuations. Historically, foreign currency exchange rate fluctuations have not had a material effect on our net financial results.
Added
However, fluctuations in foreign currency exchange rates could have a significant impact on our financial results in the future.
Added
We have a complex tax profile due to the global nature of our operations and may experience increases and variability in our quarterly and annual effective tax rate due to several factors, including changes in the mix of pre-tax income and the jurisdictions to which it relates, business acquisitions, settlements with taxing authorities, and changes in tax rates.
Added
Variability in the mix and profitability of domestic and international activities, identification and resolution of various tax uncertainties, changes in tax laws and rates, and the extent to which we are able to realize deferred tax assets and avoid potential adverse outcomes included in deferred tax liabilities, among other matters, may significantly affect our effective income tax rate in the future.
Added
Our effective income tax rate is the result of the income tax rates in the various countries in which we do business. Our mix of income and losses in these jurisdictions affects our effective tax rate. For example, relatively more income in higher tax rate jurisdictions would increase our effective tax rate and thus lower our net income.
Added
Similarly, if we generate losses in tax jurisdictions for which no benefits are available, our effective income tax rate will increase. Our effective income tax rate may also be impacted by the recognition of discrete income tax items, such as required adjustments to our liabilities for uncertain tax positions or our deferred tax asset valuation allowance.
Added
We have recorded deferred tax assets based on our assessment that we will be able to realize the benefits of our net operating losses and other favorable tax attributes. Realization of deferred tax assets involve significant judgments and estimates which are subject to change and ultimately depends on generating sufficient taxable income of the appropriate character during the appropriate periods.
Added
Changes in circumstances may affect the likelihood of such realization, which in turn may trigger a write-down of our deferred tax assets, the amount of which would depend on a number of factors. A write-down would reduce our reported net income, which may adversely impact our financial condition or results of operations or cash flows.
Added
In addition, we are potentially subject to ongoing and periodic tax examinations and audits in various jurisdictions. An adjustment from a taxing authority, could result in higher tax costs, penalties and interest, thereby adversely impacting our financial condition, results of operations or cash flows.
Added
We may never realize the full value of our intangible assets, which represent a significant portion of our total assets. At December 31, 2023, we had $177.4 million of goodwill and other intangible assets, representing approximately 44% of our total assets. These intangible assets consist primarily of goodwill, trade names, customer lists and non-compete agreements arising from our acquisitions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changePROPERTIES The following table presents certain information relating to each of the Company’s design and manufacturing properties: 15 Location Square Feet Lease Expiration Date Principal Use Newburyport, Massachusetts 183,000 Company Owned Headquarters, fabrication, molding, tooling, test lab, clean room, warehousing, and engineering Huntsville, Alabama 9,000 6/30/2031 Engineering, design, and fabrication Grand Rapids, Michigan 255,260 Company Owned Fabrication, molding, warehousing, and engineering Rancho Dominguez, California 56,000 10/31/2027 Fabrication, molding and engineering Denver, Colorado 18,270 Company Owned Fabrication and molding Denver, Colorado 28,383 Company Owned Fabrication, molding and engineering Kissimmee, Florida 49,400 Company Owned Fabrication, molding, test lab and engineering El Paso, Texas 127,730 Company Owned Warehousing, fabrication, and molded fiber operations Chicopee, Massachusetts 103,792 Company Owned Fabrication, molding, clean room, warehousing, and engineering Providence, Rhode Island 79,535 9/30/2026 Fabrication, molding, clean room, and warehousing Dominican Republic 16,557 12/31/2024 Fabrication, molding, clean room, and warehousing Dominican Republic 12,630 8/31/2023 Fabrication, molding, clean room, and warehousing Dominican Republic 51,970 8/31/2025 Fabrication, molding, clean room, and warehousing Tijuana, Mexico 83,256 2/29/2032 Fabrication, molding, and warehousing Kennesaw, Georgia 11,017 12/31/2027 Warehousing Galway, Ireland 35,069 Company Owned Fabrication, molding, clean room, and warehousing Galway, Ireland 11,500 Monthly Rental Fabrication, molding, clean room, and warehousing La Aurora, Heredia, Costa Rica 13,000 4/30/2028 Fabrication, molding, clean room, and warehousing
Biggest changePROPERTIES The following table presents certain information relating to each of the Company’s design and manufacturing properties: Location Square Feet Lease Expiration Date Principal Use Newburyport, Massachusetts 183,000 Company Owned Headquarters, fabrication, molding, tooling, test lab, clean room, warehousing, and engineering Huntsville, Alabama 9,000 6/30/2031 Engineering, design, and fabrication Grand Rapids, Michigan 255,260 Company Owned Fabrication, molding, warehousing, and engineering Rancho Dominguez, California 56,000 10/31/2027 Fabrication, molding and engineering Denver, Colorado 18,270 Company Owned Fabrication and molding Denver, Colorado 28,383 Company Owned Fabrication, molding and engineering Kissimmee, Florida 49,400 Company Owned Fabrication, molding, test lab and engineering El Paso, Texas 127,730 Company Owned Warehousing, fabrication Chicopee, Massachusetts 103,792 Company Owned Fabrication, molding, clean room, warehousing, and engineering Providence, Rhode Island 79,535 9/30/2026 Fabrication, molding, clean room, and warehousing Dominican Republic 16,557 12/31/2024 Fabrication, molding, clean room, and warehousing Dominican Republic 12,630 12/31/2026 Fabrication, molding, clean room, and warehousing Dominican Republic 51,970 8/31/2025 Fabrication, molding, clean room, and warehousing 18 Location Square Feet Lease Expiration Date Principal Use Tijuana, Mexico 83,256 2/28/2032 Fabrication, molding, and warehousing Kennesaw, Georgia 11,017 12/31/2027 Warehousing Galway, Ireland 35,069 Company Owned Fabrication, molding, clean room, and warehousing Galway, Ireland 11,500 12/31/2025 Fabrication, molding, clean room, and warehousing La Aurora, Heredia, Costa Rica 13,000 4/30/2028 Fabrication, molding, clean room, and warehousing Chicopee, Massachusetts 3,500 11/30/2024 Warehousing Dominican Republic 26,468 12/31/2025 Fabrication, molding, clean room, and warehousing La Aurora, Heredia, Costa Rica 14,200 4/30/2028 Fabrication, molding, clean room, and warehousing Dominican Republic 40,921 12/31/2028 Fabrication, molding, clean room, and warehousing

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table sets forth the range of high and low quotations for the common stock as reported by NASDAQ for the quarterly periods from January 1, 2021 to December 31, 2022: Year Ended December 31, 2021 High Low First Quarter $ 55.52 $ 44.02 Second Quarter 59.68 49.02 Third Quarter 71.17 56.11 Fourth Quarter 75.34 59.00 Year Ended December 31, 2022 High Low First Quarter $ 76.01 $ 56.10 Second Quarter 87.83 65.00 Third Quarter 100.64 74.00 Fourth Quarter 126.78 85.04 16 Number of Stockholders As of March 10, 2023, there were 79 holders of record of the Company’s common stock.
Biggest changeThe following table sets forth the range of high and low quotations for the common stock as reported by NASDAQ for the quarterly periods from January 1, 2022 to December 31, 2023: Year Ended December 31, 2022 High Low First Quarter $ 76.01 $ 56.10 Second Quarter $ 87.83 $ 65.00 Third Quarter $ 100.64 $ 74.00 Fourth Quarter $ 126.78 $ 85.04 Year Ended December 31, 2023 High Low First Quarter $ 131.80 $ 103.64 Second Quarter $ 197.23 $ 123.68 Third Quarter $ 205.08 $ 151.09 Fourth Quarter $ 185.40 $ 127.29 19 Number of Stockholders As of February 23, 2024, there were 63 holders of record of the Company’s common stock.
Issuer Purchases of Equity Securities On June 16, 2015, the Company issued a press release announcing that its Board of Directors authorized the repurchase of up to $10.0 million of the Company’s outstanding common stock. There was no share repur‐chase activity for the years ended December 31, 2022, 2021, and 2020.
Issuer Purchases of Equity Securities On June 16, 2015, the Company issued a press release announcing that its Board of Directors authorized the repurchase of up to $10.0 million of the Company’s outstanding common stock. There was no share repur‐chase activity for the years ended December 31, 2023, 2022, and 2021.
Since many of the shares are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of beneficial stockholders represented by these holders of record. Dividends The Company did not pay any dividends in 2022 or 2021.
Since many of the shares are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of beneficial stockholders represented by these holders of record. Dividends The Company did not pay any dividends in 2023 or 2022.
During the year ended December 31, 2015, the Company repurchased 29,559 shares of common stock at a cost of approximately $587 thousand. At December 31, 2022, approximately $9.4 million was available for future repurchases of the Company's common stock under this authorization.
During the year ended December 31, 2015, the Company repurchased 29,559 shares of common stock at a cost of approximately $587 thousand. At December 31, 2023, approximately $9.4 million was available for future repurchases of the Company's common stock under this authorization.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeCash Flows Net cash provided by operations for the year ended December 31, 2022 was approximately $17.7 million and was primarily a result of net income generated of approximately $41.8 million, depreciation and amortization of approximately $11.9 million, share-based compensation of approximately $3.2 million, a change in the fair value of contingent consideration of approximately $9.8 million, an increase in income taxes payable of approximately $1.0 million, an increase in accounts payable of approximately $9.1 million due to the building of inventory to meet demand and the timing of vendor payments in the ordinary course of business, an increase in accrued expenses of approximately $10.4 million primarily due to increased compensation related liabilities, customer rebates and the current portion of non-compete payments, and an increase in deferred revenue of approximately $1.0 million primarily due to increased customer deposits on tooling and machinery.
Biggest changeCash Flows Net cash provided by operations for the year ended December 31, 2023 was approximately $41.3 million and was primarily a result of net income generated of approximately $44.9 million, depreciation and amortization of approximately $11.4 million, a loss on disposal of fixed assets of approximately $0.2 million, share-based compensation of approximately $4.6 million, a change in the fair value of contingent consideration of approximately $3.5 million, a decrease in deferred taxes of approximately $0.8 million, an increase in deferred revenue of approximately $ 1.9 million primarily due to increased customer deposits on tooling and machinery, an increase in accounts payable of approximately $1.6 million due to the building of inventory to meet demand and the timing of vendor payments in the ordinary course of business, a decrease in other assets of approximately $1.6 million due primarily to the current reclassification of a deposit receivable, and an increase in other long-term liabilities of approximately $0.4 million. 22 These cash inflows and adjustments to income were partially offset by an increase in inventory of approximately $16.6 million due to inventory build for upcoming demand, an increase in accounts receivable of approximately $9.1 million due to higher sales in the last two months of the fourth quarter of 2023 as compared to the same period in the fourth quarter of 2022, an increase in refundable income taxes of approximately $3.0 million due to higher anticipated tax credits in 2023 compared to 2022, and a decrease in accrued expenses of approximately $0.9 million.
The Second Amended and Restated Credit Agreement amends and restates the Company’s prior credit agreement, originally dated as of February 1, 2018. 21 The credit facilities under the Second Amended and Restated Credit Agreement consist of a $40 million secured term loan to the Company and a secured revolving credit facility, under which the Company may borrow up to $90 million.
The Second Amended and Restated Credit Agreement amends and restates the Company’s prior credit agreement, originally dated as of February 1, 2018. The credit facilities under the Second Amended and Restated Credit Agreement consist of a $40 million secured term loan to the Company and a secured revolving credit facility, under which the Company may borrow up to $90 million.
The stock repurchase program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the program. There were no share repurchases during the years ended December 31, 2022, 2021, and 2020.
The stock repurchase program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the program. There were no share repurchases during the years ended December 31, 2023, 2022, and 2021.
The Company’s single-use and single-patient devices and components are used in a wide range of medical devices and packaging for minimally invasive surgery, infection prevention, wound care, wearables, orthopedic soft goods, and orthopedic implants. The Company is diversified by also providing highly engineered products and components to customers in the automotive, aerospace and defense, and industrial markets.
The Company’s single-use and single-patient devices and components are used in a wide range of medical devices and packaging for minimally invasive surgery, infection prevention, surfaces and support, wound care, wearables, orthopedic soft goods, and orthopedic implants. The Company is diversified by also providing highly engineered products and components to customers in the automotive, aerospace and defense, and industrial/other markets.
At December 31, 2022, the Company had approximately $55 million in borrowings outstanding under the Second Amended and Restated Credit Agreement, which were used as partial consideration for the DAS Medical and Advant Medical acquisitions, and also had approximately $0.7 million in standby letters of credit outstanding, drawable as a financial guarantee on worker’s compensation insurance policies.
At December 31, 2023, the Company had approximately $32 million in borrowings outstanding under the Second Amended and Restated Credit Agreement, which were used as partial consideration for the DAS Medical and Advant Medical acquisitions, and also had approximately $0.7 million in standby letters of credit outstanding, drawable as a financial guarantee on worker’s compensation insurance policies.
At December 31, 2022, approximately $9.4 million was available for future repurchases of the Company’s common stock under this authorization. 23 Critical Accounting Estimates The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities.
At December 31, 2023, approximately $9.4 million was available for future repurchases of the Company’s common stock under this authorization. 24 Critical Accounting Estimates The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities.
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company is a design, engineering, and custom manufacturer of comprehensive solutions for medical devices, sterile packaging, and other highly engineered custom products.
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company is a designer and custom manufacturer of comprehensive solutions for medical devices, sterile packaging, and other highly engineered custom products.
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 fair value of the liability 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 the initial calculation were management’s financial forecasts, discount rate and various volatility factors.
Income Taxes The Company recorded income tax expense, as a percentage of income before income tax expense, of 20.7% for the year ended December 31, 2022 compared to 25.1% for the same period in 2021.
Income Taxes The Company recorded income tax expense, as a percentage of income before income tax expense, of 16.7% for the year ended December 31, 2023 compared to 20.7% for the same period in 2022.
Net cash used for financing activities was approximately $25.9 million during the year ended December 31, 2022 and was primarily the result of payments on the revolving line of credit of approximately $60 million, principal payments of long-term debt of approximately $4 million, payment of contingent consideration of approximately $4.5 million, and payments of statutory withholding for stock options exercised and restricted stock units vested of approximately $1.7 million.
Net cash used for financing activities was approximately $30.0 million during the year ended December 31, 2023 and was primarily the result of payments on the revolving line of credit of approximately $28.0 million, payment of contingent consideration of approximately $5.0 million, principal payments of long-term debt of approximately $4.0 million, and payments of statutory withholding for stock options exercised and restricted stock units vested of approximately $2.7 million.
Further, the continued economic uncertainty resulting from the Ukraine war, inflation or other factors beyond the control of the Company could affect the Company’s long-term ability to access the public markets and obtain necessary capital in order to properly capitalize and continue operations.
Further, the economic uncertainty resulting from events including inflation, bank failures, and other factors beyond the control of the Company could affect the Company’s long-term ability to access the public markets and obtain necessary capital in order to properly capitalize and continue operations.
Sales to customers in all other markets decreased 8.4%, largely due to the Company’s disposition of its Molded Fiber business in July 2022. Gross Profit Gross profit as a percentage of sales (“Gross Margin”) increased to 25.5% for the year ended December 31, 2022, from 24.8% in 2021.
Sales to customers in all other markets decreased 20.6%, largely due to the Company’s disposition of its Molded Fiber business in July 2022. Gross Profit Gross profit as a percentage of sales (“Gross Margin”) increased to 28.1% for the year ended December 31, 2023, from 25.5% in 2022.
Throughout fiscal 2023, the Company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants. The Company may consider additional acquisitions of companies, technologies, or products that are complementary to its business.
The Company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants and accommodate anticipated growth in demand. The Company may consider additional acquisitions of companies, technologies, or products that are complementary to its business.
Actual results may differ from these estimates under different assumptions or conditions. The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 of this Report. The Company believes the following critical accounting policies necessitated that significant judgments and estimates be used in the preparation of its consolidated financial statements.
Actual results may differ from these estimates under different assumptions or conditions. The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 of this Report. The Company does not believe that any of the significant accounting policies required significant judgement and estimates in the preparation of its consolidated financial statements.
These results were achieved despite challenges that plagued the Company during much of 2022, including raw material and labor shortages, and significant inflationary cost increases on raw materials, labor, overhead costs and interest on the Company’s credit facility. 17 Results of Operations The following table sets forth, for the years indicated, the percentage of revenues represented by the items as shown in the Company’s Consolidated Statements of Income: 2022 2021 2020 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 74.5 % 75.2 % 75.1 % Gross profit 25.5 % 24.8 % 24.9 % Selling, general, and administrative expenses 12.9 % 14.3 % 15.3 % Acquisition costs 0.3 % 0.2 % 0.0 % Change in fair value of contingent consideration 2.8 % 0.0 % 0.0 % Gain on sale of Molded Fiber business -4.4 % 0.0 % 0.0 % (Gain) Loss on sale of fixed assets -1.8 % 0.0 % 0.3 % Operating income 15.7 % 10.3 % 9.3 % Interest expense, net 0.8 % 0.0 % 0.0 % Total other expense 0.0 % 0.0 % 0.2 % Income before taxes 14.9 % 10.3 % 9.1 % Income tax expense 3.1 % 2.6 % 1.6 % Net income from consolidated operations 11.8 % 7.7 % 7.5 % 2022 Compared to 2021 Sales Net sales increased 71.5% to $353.8 million for the year ended December 31, 2022, from net sales of $206.3 million in 2021.
Results of Operations The following table sets forth, for the years indicated, the percentage of revenues represented by the items as shown in the Company’s Consolidated Statements of Income: 2023 2022 2021 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 71.9 % 74.5 % 75.2 % Gross profit 28.1 % 25.5 % 24.8 % Selling, general, and administrative expenses 12.7 % 12.9 % 14.3 % Acquisition costs 0.0 % 0.3 % 0.2 % Change in fair value of contingent consideration 0.9 % 2.8 % 0.0 % Gain on sale of Molded Fiber business 0.0 % -4.4 % 0.0 % Loss (gain) on sale of fixed assets 0.1 % -1.8 % 0.0 % Operating income 14.4 % 15.7 % 10.3 % Interest expense, net 0.9 % 0.8 % 0.0 % Income before taxes 13.5 % 14.9 % 10.3 % Income tax expense 2.3 % 3.1 % 2.6 % Net income from consolidated operations 11.2 % 11.8 % 7.7 % 2023 Compared to 2022 Sales Net sales increased 13.1% to $400.1 million for the year ended December 31, 2023, from net sales of $353.8 million in 2022.
The change in fair value of contingent consideration for the DAS Medical and Contech Medical acquisitions for the year ended December 31, 2022, resulted in an expense of approximately $9.8 million, and was included in change in fair value of contingent consideration in the consolidated statements of income.
The change in fair value of contingent consideration for the DAS Medical acquisition for the year ended December 31, 2023, resulted in an expense of approximately $3.5 million, and was included in change in fair value of contingent consideration in the consolidated statements of comprehensive income.
The Company’s obligations under the Second Amended and Restated Credit Agreement are guaranteed by the Subsidiary Guarantors.
The Company’s obligations under the Second Amended and Restated Credit Agreement are guaranteed by the Subsidiary Guarantors and secured by substantially all assets of the Company.
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 December 31, 2022 totaled approximately $14.6 million.
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 Company notes the potential for volatility in its effective tax rate, as any windfall or shortfall tax benefits related to its share-based compensation plans will be recorded directly into income tax expense. Liquidity and Capital Resources The Company generally funds its operating expenses, capital requirements, and growth plan through internally generated cash and bank credit facilities.
The Company notes the potential for volatility in its effective tax rate, as any windfall or shortfall tax benefits related to its share-based compensation plans will be recorded directly into income tax expense.
These payments were partially offset by borrowings under our credit facility to fund acquisitions of approximately $44 million.
These payments were partially offset by borrowings under our credit facility to fund acquisitions of approximately $9.0 million and proceeds from the exercise of stock options of approximately $0.7 million.
Net cash provided by investing activities during the year ended December 31, 2022 was approximately $1.3 million and was primarily the result of the sale of Molded Fiber and the sale of the Georgetown manufacturing facility, offset by the acquisition of Advant Medical, as well as additions of manufacturing machinery and equipment and various building improvements across the Company.
Net cash used in investing activities during the year ended December 31, 2023 was approximately $10.5 million and was primarily the result of additions of manufacturing machinery and equipment and various building improvements across the Company.
On June 16, 2015, the Company announced that its Board of Directors authorized the repurchase of up to $10.0 million of the Company’s outstanding common stock.
Stock Repurchase Program The Company accounts for treasury stock under the cost method, using the first-in, first-out cost flow assumption, and includes treasury stock as a component of stockholders’ equity. On June 16, 2015, the Company announced that its Board of Directors authorized the repurchase of up to $10.0 million of the Company’s outstanding common stock.
The Company generated cash of approximately $17.7 million in operations during the year ended December 31, 2022; however, the Company cannot guarantee that its operations will generate cash in future periods. The Company’s longer-term liquidity is contingent upon future operating performance and the availability of draws on the revolving credit facility under the Second Amended and Restated Credit Agreement.
The Company’s principal sources of funds are its operations and its Second Amended and Restated Credit Agreement. The Company generated cash of approximately $41.3 million from operations during the year ended December 31, 2023. The Company cannot guarantee that its operations will generate cash in future periods.
The decrease in the effective tax rate for the current year as compared to the prior year was largely due to lower statutory rates on foreign taxable income in 2022.
The decrease in the effective tax rate for the current period as compared to the prior period is largely due to higher earnings in low-tax jurisdictions in 2023.
Interest expense, net The Company had net interest expense of approximately $39 thousand and $83 thousand for the years ended December 31, 2021 and 2020, respectively. The decrease in net interest expense was primarily due to interest received from the federal government related to income tax refunds.
Interest expense, net The Company had net interest expense of approximately $3.6 million and $2.8 million for the years ended December 31, 2023 and 2022, respectively. The increase in net interest expense for the year ended December 31, 2023 was primarily due to higher average interest rates in 2023. Interest income was immaterial.
Long-term debt consists of the following (in thousands): December 31, 2022 Revolving credit facility $ 19,000 Term loan 36,000 Total long-term debt 55,000 Current portion (4,000 ) Long-term debt, excluding current portion $ 51,000 Future maturities of long-term debt at December 31, 2022 are as follows (in thousands): Year ended December 31, Term Loan Revolving credit facility Total 2023 $ 4,000 $ - $ 4,000 2024 4,000 - 4,000 2025 4,000 - 4,000 2026 24,000 19,000 43,000 $ 36,000 $ 19,000 $ 55,000 Derivative Financial Instruments The Company used interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on certain of its variable-rate debt instruments.
At December 31, 2023, the applicable interest rate was approximately 6.7% and the Company was in compliance with all covenants under the Second Amended and Restated Credit Agreement. 23 Long-term debt consists of the following (in thousands): December 31, 2023 Term loan $ 32,000 Total long-term debt 32,000 Current portion (4,000 ) Long-term debt, excluding current portion $ 28,000 Future maturities of long-term debt at December 31, 2023 are as follows (in thousands): Year ended December 31, Term Loan 2024 $ 4,000 2025 4,000 2026 24,000 $ 32,000 Future Liquidity The Company requires cash to pay its operating expenses, purchase capital equipment, and to service its contractual obligations.
The increase in sales was primarily due to increases in sales to customers in the Medical market of 116.0%.
The increase in sales was primarily due to increased sales to customers in the Medical market of 21.0%, primarily as a result of strong organic sales led by the Company’s robotic surgery products in response to increased surgical procedures .
Changes in the fair value and net cash settlement amounts related to the swap are recorded in other income of approximately $176 thousand and approximately $24 thousand during the years ended December 31, 2022 and 2021, respectively.
Other Expense (Income) Other expense was approximately $117 thousand and other income was approximately $81 thousand for years ended December 31, 2023 and 2022, respectively. The changes in other income/expense in both periods are primarily generated by foreign currency transaction gains/losses and, in 2022, changes in the fair value of the swap liability.
Net sales for the Company for the year ended December 31, 2022 increased 71.5% to $353.8 million from $206.3 million for the year ended December 31, 2021 due to the Company’s acquisitions of Contech Medical, DAS Medical, and Advant Medical, and an organic sales increase of approximately 18.6%.
Net sales for the Company for the year ended December 31, 2023 increased 13.1% to $400.1 million from $353.8 million for the year ended December 31, 2022, primarily due to an increase in organic sales of approximately 15.7%. The organic growth was driven by strong MedTech sales led by the Company’s robotic surgery products in response to increased surgical procedures.
These costs were primarily for legal services, valuation services and stamp duty filings and are reflected on the face of the income statement. Change in fair value of contingent consideration 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.
As a percentage of sales, SG&A decreased to 12.7% in 2023 from 12.9% in 2022. 21 Change in fair value of contingent consideration In connection with the acquisition of DAS Medical in 2021, the Company is required to make contingent payments, subject to the acquired entities achieving certain financial performance thresholds.
As a percentage of sales, material and direct labor costs collectively increased approximately 2.3%, while overhead decreased approximately 2.2%. The increase in collective material and labor costs as a percentage of sales was primarily due to inflationary increases in raw material costs as well as labor rate increases and staffing challenges.
As a percentage of sales, material and labor costs collectively decreased 0.7%, while overhead decreased 1.9%.
Removed
Gross margin increased to 25.5% for the year ended December 31, 2022, from 24.8% in 2021. Operating income and net income for the year ended December 31, 2022 increased by 161.1% and 163.1%, respectively.
Added
Gross profit as a percentage of sales (“gross margin”) for the year ended December 31, 2023 increased to 28.1% from 25.5% in the same period last year, largely due to improved operating efficiencies and strong organic sales growth primarily attributable to the Company’s great progress strengthening its platform and further integrating its three most recent acquisitions.
Removed
The increases in sales in the Medical market were primarily due to increased sales from the Company’s recently acquired companies of $121.9 million, as well as an organic sales increase of 24.0% due to increased medical procedures, restoring of inventory levels by our customer, and price increases implemented in response to incremental input costs.
Added
The Company captured synergies by sharing best practices, moving business to best-fit manufacturing locations, and standardizing systems for information technology, quality, and safety. 20 The Company experienced some softening in demand in the latter part of the year due to excess inventory held by some of our customers.
Removed
As a percentage of sales, material and labor costs collectively increased 5.5%, while overhead decreased 6.3%. The increase in gross margin is primarily due to the leverage of organic sales growth over the fixed portion of overhead, partially offset by inflationary cost increases in both raw materials and labor.
Added
The Company believes this is short-term in nature and will soon return to normal levels.
Removed
Selling, General and Administrative Expenses Selling, General, and Administrative Expenses (“SG&A”) increased approximately 55.3% to $45.8 million for the year ended December 31, 2022, from $29.5 million in 2021.
Added
The increase in Gross Margin is primarily due to the leverage of organic sales growth over the fixed portion of overhead, as well as improved operating efficiencies, as described above under “Overview.” Selling, General and Administrative Expenses Selling, General, and Administrative Expenses (“SG&A”) increased approximately 11.1% to $50.9 million for the year ended December 31, 2023, from $45.8 million in 2022, largely due to increased performance based compensation, benefits and payroll tax expenses and the additional SG&A expenses from the Advant acquisition (Refer to Note 2, “Acquisitions and Divestiture – Advant Medical,” in the accompanying notes to the consolidated financial statements for a discussion of the acquisition of Advant Medical).
Removed
The increase in SG&A was primarily due to the additional SG&A from recent acquisitions and increased employee compensation and benefits, offset by reduced SG&A as a result of the sale of the Molded Fiber business. As a percentage of sales, SG&A decreased to 12.9%, from 14.3% in 2021.
Added
The contingent consideration payments for the DAS Medical acquisition are four, $5 million payments for a total of up to $20 million. The Company paid $5 million during the second quarter of 2023.
Removed
The decrease in SG&A as a percentage of sales was primarily due to increased organic sales measured against relatively fixed SG&A. 18 Acquisition costs The Company incurred approximately $1.0 million in costs associated with acquisition related activities which were charged to expense for the year ended December 31, 2022.
Added
The fair value of the liabilities for the contingent consideration payments recognized at December 31, 2023 totaled approximately $13.1 million for the remaining $15 million of potential earnout.
Removed
The potential contingent consideration payments for both the DAS Medical and Contech Medical acquisitions combined are $25 million.
Added
The effective tax rate for the year differs from the federal statutory rate of 21% due to favorable rates in foreign countries, federal deductions available for certain exported goods and federal credits, offset by state income taxes and disallowed compensation under section 162M of the Internal Revenue Code.
Removed
The Company paid $5 million during the fourth quarter of 2022 to fulfill the contingent consideration for the Contech Medical acquisition. Gain on sale of Molded Fiber business On July 26, 2022, pursuant to a share purchase agreement and related agreements, the Company sold Molded Fiber Technology, Inc.
Added
For more information about the Company’s results of operations of 2022 compared to 2021, see the section titled “ Management ’ s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — 2022 Compared to 2021 ” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 16, 2023.
Removed
(“MFT”) and related real estate in Iowa to CKF USA INCORPORATED (“CKF”) (a Delaware Corporation) for approximately $31.5 million (after giving effect to a working capital adjustment of approximately $0.1 million that decreased the total consideration).
Added
Liquidity and Capital Resources The Company generally funds its operating expenses, capital requirements, and growth plan through internally generated cash and bank credit facilities.
Removed
The net book value of the assets sold were approximately $15.4 million and the Company recorded a net gain on sale of approximately $15.7 million, which was recorded in the year ended December 31, 2022.
Added
The Company’s longer-term liquidity is contingent upon future operating performance and availability of draws on its revolving credit facility.
Removed
This net gain included $2.6 million of the purchase price which is being held in escrow until January 26, 2024, 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.
Removed
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. Gain on disposal of property, plant and equipment For the year ended December 31, 2022, the Company recorded a gain on the sale of fixed assets of approximately $6.2 million.
Removed
This was primarily the result of the sale of the Company’s Georgetown, Massachusetts manufacturing facility. The operations previously housed in this location have been fully absorbed by the nearby Newburyport manufacturing facility.
Removed
The gain on the Georgetown manufacturing facility was determined by a sales price of approximately $6.7 million measured against a net book value of approximately $0.5 million and selling expenses of approximately $0.1 million. Interest expense, net The Company had net interest expense of approximately $2.8 million and $39 thousand for the years ended December 31, 2022 and 2021, respectively.
Removed
The increase in net interest expense for the year ended December 31, 2022 was primarily due to interest paid on funds drawn on the Company’s credit facility used to finance recent acquisitions. 19 Other Income Other income was approximately $81 thousand and approximately $26 thousand for years ended December 31, 2022 and 2021, respectively.
Removed
The increase in other income was primarily generated by foreign currency transaction gains and changes in the fair value of the swap liability, which is driven by anticipated future interest rate changes, offset by net cash settlement amounts related to the swap.
Removed
The Company notes the potential for volatility in its effective tax rate, as any windfall or shortfall tax benefits related to its share-based compensation plans will be recorded directly into income tax expense. 2021 Compared to 2020 Sales Net sales increased 15.0% to $206.3 million for the year ended December 31, 2021, from net sales of $179.4 million in 2020.
Removed
The increase in sales was primarily due to increases in sales to customers in the Medical, Consumer, Electronics, Industrial, Automotive and Aerospace & Defense markets of 10.2%, 42.2%, 28.3%, 13.6%, 6.8% and 25.7% respectively.
Removed
The increase in sales to the Medical market was partially attributable to sales from the two fourth quarter acquisitions, Contech Medical and DAS Medical, of $4.5 million and $1.4 million, respectively. Organically, sales to the medical market grew 5.3% in 2021. Gross Profit Gross Margin decreased slightly to 24.8% for the year ended December 31, 2021, from 24.9% in 2020.
Removed
The decrease in overhead as a percentage of sales was primarily due to fixed overhead costs measured against increased sales. Selling, General and Administrative Expenses SG&A increased approximately 7.2% to $29.5 million for the year ended December 31, 2021, from $27.5 million in 2020. As a percentage of sales, SG&A decreased to 14.3%, from 15.3% in 2020.
Removed
The decrease in SG&A as a percentage of sales was primarily due to relatively fixed SG&A expenses measure against increased sales. The increase in SG&A was primarily due to increased compensation programs and travel and entertainment as well as additional SG&A from the fourth quarter acquisitions of Contech and DAS.
Removed
Acquisition costs The Company incurred approximately $430 thousand in costs associated with acquisition related activities which were charged to expense for 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.
Removed
Other Income and Expense Other income was approximately $26 thousand and other expense was approximately $366 thousand for years ended December 31, 2021 and 2020, respectively.
Removed
The changes in other expense are primarily generated by changes in the fair value of the swap liability, which is driven by anticipated future interest rate changes and a declining nominal amount, offset by net cash settlement amounts related to the swap. 20 Income Taxes The Company recorded income tax expense, as a percentage of income before income tax expense, of 25.1% for the year ended December 31, 2021 compared to 17.9% for the same period in 2020 The increase in the effective tax rate for the current period was largely due to lower discrete income tax benefits from share-based compensation and amended tax returns in the year ended December 31, 2021 compared to the same period of 2020.
Removed
These cash inflows and adjustments to income were offset by a gain on disposal of property, plant and equipment of approximately $6.2 million, a gain on the sale of the Molded Fiber business of approximately $15.7 million, a decrease in deferred taxes of approximately $4.7 million, an increase in accounts receivable of approximately $16.8 million due to higher sales in the last two months of the fourth quarter of 2022 as compared to the same period in the fourth quarter of 2021 and the addition of Advant Medical receivables following the Company’s acquisition of Advant, an increase in inventory of approximately $19.6 million due to inventory build for upcoming demand, restocking to historical levels and the addition of Advant Medical inventory, an increase in prepaid expenses of approximately $0.7 million, an increase in other assets of approximately $3.5 million due to increased right of use lease assets and a decrease in other long-term liabilities of approximately $3.3 million due primarily to the payment and current reclassification of contingent consideration.
Removed
At December 31, 2022, the applicable interest rate was approximately 5.2% and the Company was in compliance with all covenants under the Second Amended and Restated Credit Agreement.
Removed
The Company does not enter into derivative instruments for any purpose other than cash flow hedging. Derivative financial instruments expose the Company to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract.
Removed
When the fair value of a derivative contract is positive, the counterparty owes the Company, creating credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, in these circumstances the Company is not exposed to the counterparty’s credit risk.
Removed
The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with carefully selected major financial institutions based upon their credit profile.
Removed
Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. 22 The Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities.
Removed
The Company’s debt obligations exposed the Company to variability in interest payments due to changes in interest rates. The Company believed that it was prudent to limit the variability of a portion of its interest payments.
Removed
To meet this objective, in connection with the first Amended and Restated Credit Agreement, the Company entered into a $20 million, 5-year interest rate swap agreement under which the Company receives three-month LIBOR plus the applicable margin and pays a 2.7% fixed rate plus the applicable margin.
Removed
The swap modified the Company’s interest rate exposure by converting the previous term loan from a variable rate to a fixed rate in order to hedge against the possibility of rising interest rates during the term of the loan. The notional amount was approximately $5.7 million at December 31, 2022.
Removed
The fair value of the swap as of December 31, 2022 and 2021 was zero and approximately $(176) thousand, respectively, and is included in other liabilities.
Removed
As the Company has paid the remaining balance of the term loan that was associated with the swap in its entirety, there is no longer underlying debt to hedge against with the swap. The changes in the fair value of the swap will continue to be accounted for as a financial instrument until its maturity, on February 1, 2023.
Removed
Future Liquidity The Company requires cash to pay its operating expenses, purchase capital equipment, and to service its contractual obligations. The Company’s principal sources of funds are its operations and its Second Amended and Restated Credit Agreement.
Removed
The Company's liquidity will be impacted to the extent additional stock repurchases are made under the Company's stock repurchase program. Stock Repurchase Program The Company accounts for treasury stock under the cost method, using the first-in, first-out cost flow assumption, and includes treasury stock as a component of stockholders’ equity.
Removed
The Company has reviewed these policies with its Audit Committee. Goodwill In testing Goodwill for impairment, the Company uses several methods including the discounted cash flows method (“DCF”) under the income approach to determine the fair value of the reporting unit for purposes of testing the reporting unit’s carrying value of goodwill for impairment.
Removed
The key assumptions used in our approach included: ● The reporting unit’s estimated financials and five-year projections of financial results, which were based on strategic plans and long-range forecasts. Sales growth rates represent estimates based on current and forecasted sales mix and market conditions.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−0 removed2 unchanged
Biggest changeAs of December 31, 2022, the applicable interest rate was approximately 5.2%. 25
Biggest changeAs of December 31, 2023, the applicable interest rate was approximately 6.7%.
Market risk represents the risk of changes in value of a financial instrument caused by fluctuations in interest rates, foreign exchange rates, and equity prices. At December 31, 2022, the Company’s cash and cash equivalents consisted primarily of bank accounts in U.S. dollars, and their valuation would not be affected by market risk.
Market risk represents the risk of changes in value of a financial instrument caused by fluctuations in interest rates, foreign exchange rates, and equity prices. At December 31, 2023, the Company’s cash and cash equivalents consisted primarily of bank accounts in U.S. dollars, and their valuation would not be affected by market risk.

Other UFPT 10-K year-over-year comparisons