UFP Technologies (UFPT) Q3 2025: $16M Backlog and 30%+ MedTech Growth Signal Recovery Trajectory
UFPT’s Q3 was defined by a $3 million labor disruption at AJR, but MedTech segments—particularly interventional, surgical, and orthopedics—delivered over 30% growth, offsetting headwinds. Management expects to recapture delayed revenue from a $16 million backlog and sees multi-year upside from expanding robotic surgery programs and contract extensions, driving a bullish long-term outlook.
Summary
- Labor Disruption: AJR workforce turnover compressed margins, but operational recovery is underway.
- MedTech Outperformance: Interventional, surgical, and orthopedics each grew more than 30%, offsetting patient services weakness.
- Robotic Surgery Tailwind: Multi-year contract expansion and new program launches set up accelerated growth in 2026 and beyond.
Performance Analysis
UFP Technologies’ Q3 was a study in resilience and operational friction. Total sales rose 6.5% to $154.6 million, but organic growth was flat due to a severe labor disruption at AJR, an acquired unit serving Stryker, which lost over half its direct labor force following E-Verify checks. This led to $3 million in extra labor costs, a 200-basis-point gross margin hit, and a $0.28 reduction in EPS. Excluding the AJR impact, base business organic growth was approximately 5% and gross margin would have reached 29.6%.
MedTech, the company’s primary growth engine, delivered robust results: interventional, surgical, orthopedics, and wound care each posted over 30% growth. The only drag within MedTech was patient services, down 23% due to AJR’s disruption. Advanced components (non-medical) declined 2.7% as resources remained focused on MedTech. Cash flow from operations was strong at $35.9 million, with $17.5 million of debt paid down and leverage well below 1.5x. Backlog swelled to $16 million, positioning the company for a revenue catch-up as AJR’s workforce stabilizes.
- AJR Labor Issue: More than 50% workforce turnover at AJR reduced output and deferred $8 million in orders.
- Gross Margin Compression: Extra labor costs dropped gross margin to 27.7%, but normalized margins would have improved YoY.
- Robotic Surgery Growth: Segment revenue up 5.1%, with Intuitive Surgical growth closer to 8% and two new programs launching.
The combination of near-term operational recovery and long-term MedTech tailwinds positions UFPT for an inflection in 2026 as headwinds subside and new programs scale.
Executive Commentary
"U of P delivered solid Q3 results despite absorbing abnormally high costs related to the labor inefficiency challenge at our AJR Illinois facility... We've made significant progress in hiring and training new associates... Although we expect the inefficiency to impact a couple more quarters, the greatest impact is now behind us."
Jeff Bailey, CEO and Chairman
"Adjusted operating margin for the third quarter was 17% of sales, within our target range despite the $3 million of extra labor costs... During the third quarter, we generated $35.9 million in cash from operations, paid down approximately $17.5 million in debt, and ended the quarter with a leverage ratio well below 1.5 times."
Ronald J. Lathai, CFO
Strategic Positioning
1. MedTech Focus and Segment Realignment
UFPT’s strategic pivot to MedTech is now fully evident, with over 30% growth in key subsegments (interventional, surgical, orthopedics, wound care). Advanced components, the non-medical segment, is now a secondary focus. Patient services, mainly AJR, was the lone weak spot, but management expects a rebound as workforce issues abate.
2. Robotic Surgery Platform Leverage
Robotic surgery, especially the partnership with Intuitive Surgical, is emerging as a long-term growth pillar. UFPT is in negotiations to extend and expand a $500 million contract, with the customer requesting planning for “significantly increasing volumes.” Two new robotic programs are expected to deliver over $10 million in revenue in 2026 and could double in the following years. Both UFPT and its customer are planning multimillion-dollar investments in new facilities and capacity.
3. M&A Integration and Accretive Bolt-Ons
Recent acquisitions, including Unipec and TPI, have been immediately accretive and exceeded expectations, though their absolute contribution remains small. The company continues to pursue “pro-shareholder” smaller deals, which bring new capabilities and financial upside without the inflated multiples seen in larger targets.
4. Operational Recovery and Backlog Monetization
The AJR labor disruption created a $16 million backlog, with $8 million in unfulfilled Q3 orders. Management is prioritizing output over efficiency to work down this backlog, aiming to fulfill most by early 2026. Gross margin recovery will lag output gains, but normalized profitability is expected as the backlog clears and operational stability returns.
5. Capital Structure and Cash Generation
Strong cash flow has enabled rapid deleveraging, with leverage below 1.5x and continued capacity for strategic investment. Tariff exposure is minimal and largely passed through to customers, reducing external cost risk.
Key Considerations
This quarter’s results highlight both the risk of operational disruptions in acquired businesses and the underlying strength of UFPT’s MedTech platform. The company’s ability to absorb a major labor shock, maintain profitability, and keep investing for growth is notable. Looking ahead, investors should weigh the pace of backlog conversion, the durability of MedTech growth, and the execution risk around scaling new robotic surgery programs.
Key Considerations:
- AJR Recovery Timeline: Full normalization depends on workforce stabilization and efficiency gains, likely extending into early 2026.
- Robotic Surgery Contract Expansion: Negotiations with Intuitive Surgical could drive a step-change in long-term revenue visibility and capital investment needs.
- Backlog Monetization: Successful fulfillment of the $16 million backlog is critical to near-term revenue and margin recovery.
- Acquisition Discipline: Continued focus on small, accretive deals with new capabilities rather than large, high-multiple targets.
- Margin Trajectory: Gradual improvement expected, but near-term results will remain below normalized levels as output is prioritized over efficiency.
Risks
Execution risk remains elevated as UFPT works through the AJR labor disruption and ramps new programs in the Dominican Republic and La Romana. Delays in backlog fulfillment, slower-than-expected workforce training, or further inefficiencies could prolong margin compression. Contract negotiations with Intuitive Surgical also introduce uncertainty around capital outlays and volume commitments. Continued program launches, while a growth driver, carry startup cost risk that may pressure near-term profitability.
Forward Outlook
For Q4 2025, UFPT expects:
- Continued improvement in AJR output, with inefficiencies lingering but reduced compared to Q3.
- Backlog fulfillment to drive sequential revenue growth, with most of the $16 million backlog addressed by early 2026.
For full-year 2025, management maintained a bullish stance:
- Strong MedTech demand, especially in interventional, surgical, and orthopedics, to continue offsetting isolated segment weakness.
Management highlighted several factors that shape the outlook:
- Robotic surgery contract expansion and new program launches will accelerate growth in 2026 and beyond.
- Gross margin recovery will be gradual as operational focus remains on backlog reduction through early next year.
Takeaways
UFPT’s Q3 was defined by a temporary operational shock, but the company’s MedTech engine and backlog monetization set up a strong recovery path.
- Backlog-Driven Upside: The $16 million backlog, if fulfilled on schedule, provides a near-term revenue and margin catalyst as labor issues abate.
- MedTech and Robotic Surgery Expansion: Double-digit growth in core MedTech segments and the ramp-up of new robotic programs underpin long-term upside.
- Execution Watchpoint: Investors should monitor the pace of AJR recovery, contract negotiations, and the scaling of new programs for signs of upside or further disruption.
Conclusion
Despite a disruptive labor event at AJR, UFPT’s core MedTech platform and robust backlog position the business for a meaningful recovery and renewed growth in 2026. Investors should focus on operational execution and the outcome of key contract negotiations as the next major catalysts.
Industry Read-Through
UFPT’s experience this quarter is a cautionary tale for medtech suppliers about the operational risks of rapid acquisition integration and workforce compliance. The company’s ability to pass through tariff costs and maintain strong cash flow despite disruption reflects the resilience of specialized medical contract manufacturing. The accelerating demand for robotic surgery solutions and the willingness of OEM partners to co-invest in capacity signal continued secular tailwinds for the sector. Competitors with exposure to labor-intensive processes or customer concentration should be mindful of similar risks and the value of diversified, high-growth end-markets.