UFPT’s Growth Story In Shambles As Largest Customer Responsible for 96.5% Of Growth Slashes Orders

We are short UFP Technologies (UFPT), which specializes in producing single-use drapes, because our research indicates that their largest customer, Intuitive Surgical (ISRG), —who controls 57% of surgical robot systems —is gutting UFPT by insourcing and buying from a competitor. Import records show UFPT shipment volume by weight plummeted 38% from Q2 2024 through Q1 2025, signaling a potential crisis. Tomorrow, management hosts its first-ever earnings call in 32 years of being a publicly traded company (red flag). Coincidentally, our diligence indicates Intuitive Surgical (ISRG) is only willing to speak to investors after UFPT’s earnings call. Perhaps UFPT’s CEO or CFO will explain their delayed disclosure of ISRG's insourcing plans and why they cumulatively dumped $48 million in stock since March 2024.

We believe UFPT’s surgical drape business with ISRG faces existential threats from several converging forces – all of which appear to be driven by its own customer. Last quarter, ISRG's IR team boasted to us directly they had already begun insourcing 10% of surgical drapes from their plant in Mexico in a bid to improve margins. An ISRG European executive wrote on a company career page in September 2024 about ISRG’s plans to manufacture drapes at a new Bulgarian facility—confirmed by our private investigator's site visit. Import records indicate ISRG has started purchasing from UFPT's direct competitor, Microtek, in October 2024 as UFPT's import volumes crater—evidence this once-critical relationship has run its course.

ISRG represents 29% of UFPT's revenue and drove a staggering 96.5% of organic growth in 2024, making them vital to UFPT's growth narrative. We believe ISRG has been signaling this story's death since at least March 2024 through an amended agreement. While facing this revenue cliff, what has UFPT’s management done (besides selling enough stock to retire in paradise)? We think they have overpaid for four acquisitions that will only compound their problems.

AJR Enterprises, the largest acquisition representing 77% of new revenue, is an Illinois-based contract manufacturer with Stryker Corp. (Stryker) as its sole customer. A former AJR employee described the operation as fundamentally stagnant, having "no growth" and "no analytics, no marketing, no sales, no lost order history." UFPT likely acquired AJR for its margins, as they "did not do anything for less than... 25-30% margin, gross." We think Stryker isn’t going to offer these cushy margins to UFPT; the companies recently announced plans to offshore AJR manufacturing with pricing concessions to Stryker in exchange for a requirement contract.