Q3 2020 Ultralife Corp Earnings Call
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Good day and welcome to this Ultralife Corporation third quarter Twentytwenty earnings release Conference call.
Today's conference is being recorded Optus time for opening remarks, and introduction this I'd like to turn the call over to Ms. Jody Burfening. Please go ahead.
Thank you John and good morning, everyone.
Thank you for joining us this morning for Ultralife Corporation Conference call. The third quarter of fiscal 2020 with us on today's call. Unlike populates Ultralifes President and CEO.
Same ultralifes Chief Financial Officer.
The earnings press release issued earlier this morning, and if anyone has not yet received a copy I invite you to visit the Companys website, Www <unk> Gillette core dotcom or Youll find the release under Investor News in the Investor Relations section.
Before turning the call over to management I would like to remind everyone that some statements made during this conference call will contain forward looking statements based on current expectations actual results could differ materially from those projected as a result of various risks and uncertainties. These include potential reductions in revenues don't keep customers.
Certain global economic conditions and acceptance of new products on a global basis. The company cautions investors not to place undue reliance on forward looking statements, which reflects the companys analysis only as of today's date. The company undertakes no obligation to publicly update forward looking statements to reflect subsequent events or circumstances.
Further information on these and other factors that could affect Ultralifes financial results is included in Ultralifes filings with the Securities and Exchange Commission, including the latest annual report on form 10-K, and the latest quarterly report on form 10-Q in.
In addition on today's call management will refer to certain non-GAAP financial measures that management considers to be useful metrics and differ from GAAP to non-GAAP measures should be considered as supplemental to corresponding GAAP figures.
With that I would now like to turn the call over to Mike Good morning, Mike.
Good morning, Jody and thank you everyone for joining the call.
Today I'll start by making some brief overall comments about our Q3 2020 operating performance.
After which I'll turn the call over to Phil who will take you through the detailed financial results.
11%.
Preserving a quarterly EPS profitability of three cents.
And with focus working capital management, we further strengthened our balance sheet with a $7 million reduction in debt.
In a few minutes I'll give you a further update on our revenue initiatives, but first I'd like to ask Ultralife CFO, Phil Fain to take you through additional details of the Q3 2020 financial performance Bill.
No.
Thank you, Mike and good morning, everyone earlier.
Earlier. This morning, we released our third quarter results for the quarter ended September Thirtyth 2020, we.
We also filed our form 10-Q and form 8-K with the FCC. This morning and have updated our investor presentation, which you can find in the Investor Relations section of our website I would like to thank all those that help make this happen.
For the third quarter consolidated revenues of 24.4 million decreased $3.1 million or 11.4% from the 27.5 million reported for the third quarter of 2019.
The year over year variance reflects a significant increase and battery sales to our medical in government defense customers, which.
Which was offset by lower oil and gas market and communication system sales.
We estimate that approximately 2 million of the year over year variance is due to demand impacts associated with cold at 19.
With a substantial increase in sales of medical batteries, especially those shoes, and ventilators respirators and infusion pumps.
More than offset by weakness in the oil and gas and international industrial markets.
Station initiatives.
Under delivery orders announced in October 2018.
These orders were completed in the second quarter of 2020.
On a consolidated basis commercial sales in government defense sales decreased 10.8% in 12.5% respectively from the 2019 period the.
The commercial to government defense sales split was 65 35 versus 64 36 for the year earlier period.
Our consolidated gross profit was $6.5 million compared to $7.9 million for the 2019 period.
As a percentage of total revenues consolidated gross margin was 26.7% versus 28.6% for last years third quarter.
Gross profit for our battery and energy products business decreased to $5.7 million from $6.1 million grew.
Gross margin was 26.0% a decrease of 110 basis points from 27.1% reported last year, reflecting product mix of lower oil and gas market sales and incremental costs in 2020 associated with the transition of a multitude of.
New products to higher volume production.
For our communication systems segment gross profit was point $8 million compared to $1.7 million for the year earlier period.
Gross margin of 32.8% decreased 270 basis points from 35.5% last year, primarily due to sales mix and lower factory throughput in the 2020 period.
Operating expenses decreased point $8 million from $6.6 million last year to $5.8 million.
The decrease was consistent with the overall percentage reduction in revenues in attributable to certain head count reductions minimal travel and strict control over all discretionary spending.
As a percentage of revenues operating expenses were 23.8% for both the 2020 and 2019 periods.
Operating income for the third quarter of 2000 $21.7 million compared to $1.3 million for the 2019 period, reflecting the net financial impact of Cobot, 19, and lower year over year sales for communication systems.
And operating margin was 2.9% for the 2020 period versus 4.8% last year driven by the lower gross margins.
Our tax provision for the third quarter was $192000 compared to 225000 for the 2019 period computed at statutory rates.
While excluding the benefits of our net operating losses and tax credit carry forwards for GAAP reporting purposes.
Accordingly, our reported tax provision for the third quarter is based on an effective rate of 29.4% while utilization of our deferred tax assets will drive the tax provision down to only $4000 or <unk>, 0.6%, when we actually pay our taxes.
We expect that the net operating losses and tax credits included in our deferred taxes will offset all use taxes for the foreseeable future.
Using the 29.4% statutory tax rate net income was point $4 million or three cents per share on a diluted basis for the 2023rd quarter.
This compares to net income of $5.9 million or six cents per share on a diluted basis for 2019.
We utilized adjusted EPS to reflect actual cash taxes paid or to be paid and define adjusted EPS.
As EPS, excluding the provision for non cash use taxes expected to be fully offset by our net operating loss carry forwards and other tax credits.
As noted in the supplementary table in our earnings release adjusted EPS on a diluted basis was four cents per share for the 2023rd quarter compared to seven cents for the 2019 third quarter.
We estimate that the adverse impact of coal bid 19 to our adjusted EPS was six cents per share.
Ultimately ended the quarter with a strengthened balance sheet and enhanced liquidity.
With cash on hand of 13.8 million working capital of $45 million and a current ratio of 3.6.
During the quarter, we utilized cash generated from operations and accounts receivable collections to further reduce our debt by $7.1 million, while increasing our cash on hand by $5.4 million since the end of the second quarter.
Since the beginning of.