Q1 2021 Ultralife Corp Earnings Call

[music].

Good day and welcome to this Ultra Life Corporation first quarter 2021, earning release conference call at.

At this time for opening remarks, I'd like to turn the conference over to MS. Jody briefing. Please go ahead ma'am.

Thank you Emma and good morning, everyone and thank you for joining US this morning for ultra low corporations conference call for the first quarter of fiscal 2021.

With us on today's call from my public Ultra as the President and Chief Executive Officer, and Phil Fain <unk> Chief Financial Officer. The earnings Press release was issued earlier this morning, and if anyone has not yet received a copy I invite you to visit the Companys website www ultra of core Dot com, where you'll find the release under Investor News.

And the Investor Relations section of <unk>.

And 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.

The potential reductions and revenue from key customers uncertain 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 reflect the companys analysis only as of today's date.

The 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 ultra life's financial results is included.

The company's 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 and.

In addition on today's call management will refer to certain non-GAAP financial measures. The management considers to be useful and differ from GAAP and non-GAAP measures should be considered of supplemental to corresponding GAAP figures with that I would now like to turn the call over to Mike Good morning.

Good morning, Jody and thank you everyone for joining the call.

Today I'll start by making some brief overall comments about our Q1 2021 operating performance.

After which I'll turn the call over to Phil who will take you through the detailed financial results.

After Phil is finished I'll provide an update on the progress against our 2021 and revenue initiatives.

Before opening it up for questions.

For the first quarter of 2021.

Our core of battery and your products business posted its fourth consecutive quarter of Saar.

All of the double digit year over year organic revenue growth.

Total be any first quarter of medical sales.

And B any government defense sales.

Once again up strongly.

And we're coming of year over year decline and the.

Oil and gas revenue and leading to a total Q1 being the sales increase of over 6% year over year.

Communication systems Q1 revenues were lower than the previous year with the non recurrence of the prior year of vehicle adapter and Mount and power amplifier sales under the U S Army's network modernization initiatives.

For the total company the Strawn core Beanie revenue growth fully offset.

And with lower oil and gas and communication system sales to.

To achieve modest Q1, and 2021 year over year revenue growth.

Also in Q1.

Gross margin headwinds impacted earnings primarily due to mix and new.

New product transition costs, and incremental freight and expediting costs.

And a few minutes I will give you further updates on our revenue initiatives.

But first I'd like to ask ultra and <unk> CFO, Phil Fain to take you through additional details of the first quarter 2021.

The performance Bill.

Thank you, Mike and good morning, everyone.

Earlier. This morning, we released our first quarter results for the quarter ended March 31 2021.

Also filed our form 10-Q, with the SEC and of updated our Investor presentation, which you can find on the Investor Relations section of our website I would like to thank all of those who help make this happen.

For the first quarter consolidated revenues totaled $26 million compared to $25 8 million reported for the first quarter of 2020.

Similar to the last three quarters the year over year variance reflects a significant increase and battery sales to our medical and government defense customers.

Which was offset by lower oil and gas market and communication system sales.

We estimate that our Q1 2021 sales were reduced by approximately 2 million due to demand impacts associated with COVID-19.

With the increase and sales of medical batteries used in ventilators, respirators, and infusion pumps more than offset by weakness and the oil and gas and international industrial markets, along with some delays with government defense orders.

Revenues from our battery and energy products segment were $22 1 million and increase of six 5% from last year.

Attributable to a 32, 2% increase and medical battery sales and.

On the 33% increase and government defense sales, reflecting higher demand for new products from a large global defense contractor.

Offsetting by of 30% decline and oil and gas market sales.

The sales split between commercial and government defense was $65 35, compared to $71 29 for the 2020 first quarter and the domestic to international split was $57 42 and.

Per to $54 46 last year.

Both reflecting higher U S government defense sales.

Revenues from our communications systems segment were $3 9 million a decrease of 23, 6% from last year. The decrease reflects 2020 shipments of vehicle amplifier adapter systems to support the use of Army's network modernization initiatives under delivery orders announced in October.

2018.

These orders were completed and the second quarter of 2020.

On a consolidated basis government defense sales increased five 6%, while commercial sales declined three 1% from the 2020 period.

The commercial to government defense sales split was 50 545 versus $57 43 for the year earlier quarter.

Our consolidated gross profit was $7 million compared to $7 3 million for the 2020 period.

As a percentage of total revenues consolidated gross margin was 26, 9%.

Versus 28, 4% for last year's first quarter.

Gross profit for our battery and energy products business was $5 4 million compared to $5 3 million last year.

<unk> margin was 24, 6% of <unk>.

Decrease of 100 basis points from 25, 6% reported last year.

Reflecting the product mix impact of lower and the oil oil and gas market sales.

Incremental costs in 2021 associated with the transition of a multitude of new products to higher volume production and incremental freight and expediting costs.

For our communication systems segment gross profit was $1 5 million compared to $2 million for the year earlier period.

Gross margin was 39, 9% the same for both reporting periods.

Operating expenses increased <unk> 2 million or 3% from $5 8 million last year to 6 million. This increase primarily reflects our investment and engineering and sales resources for new product development and market launches, partially offset by lower travel costs.

As a percentage of revenues operating expenses were 23, 2% compared to 22, 7% for last year's first quarter.

Operating income for the first quarter of 2021 was $1 million compared to $1 5 million for the 2020 quarter, reflecting the net financial impact of COVID-19, and lower year over year sales for communication systems.

And operating margin was three 7% for the 2021 period versus five 7% last year, driven primarily by the lower gross margin and our battery and energy products business.

Adjusted EBITDA defined as EBITDA, including noncash stock based compensation expense.

Was two point of $1 million or seven 8% of sales compared to $2 5 million or nine 8% for the first quarter of 2020.

On a trailing 12 month basis, adjusted EBITDA is $9 2 million or eight 5% of sales.

Our tax provision for the first quarter was <unk> 2 million compared to <unk> 3 million for the 2020 quarter computer debt statutory rates.

While excluding the benefits of our net operating losses and tax credit carryforwards for GAAP reporting purposes.

Accordingly, our reported tax provision for the first quarter is based on an effective rate of 24, 2%.

While utilization of our deferred tax assets will drive the tax provision down to only 49000 were five 5% when we pay our taxes.

We expect that the net operating losses and tax credits included in our deferred tax assets will offset all U S taxes for the foreseeable future.

Using the 24, 2% statutory tax rate net income was <unk> $7 million per <unk> per share diluted basis for the 2021 first quarter.

This compares to net income of $1 1 million of <unk> per share on a diluted basis for the 2020 quarter.

We utilize the adjusted EPS to reflect actual cash taxes paid or to be paid and defined adjusted EPS and EPS as EPS, excluding the provision for non cash U S taxes expected to be fully offset by net operating loss carryforwards and other tax credits.

As noted in the supplementary table on our earnings release adjusted EPS on a diluted basis was <unk> <unk> per share for the 2021 first quarter compared to <unk> <unk> for the 2021st quarter.

We estimate that the adverse impact of COVID-19 to our adjusted EPS for the 2021 first quarter was <unk> <unk> per share.

Ultralight further strengthened its balance sheet and liquidity and the first quarter with cash on hand, increasing 28%, the $13 7 million and debt decreasing 27% to $1 1 million from year end 2020.

During the first quarter. The company received proceeds of $1 $5 9 million from the lithium ion battery antitrust settlement awarded and the first quarter of 2020.

We ended the 2021 first quarter with working capital of $46 9 million and a current ratio of three eight compared to $45 8 million and $3 four for year end 2020.

As a result, we remain well positioned to fund organic growth initiatives, including new product development and strategic capital expenditures.

And while expediting, our organic growth through accretive M&A.

Going forward with a resilient business model ample liquidity diversified end markets and growth initiatives, we remain steadfastly focused on releasing the full leverage potential of our business model.

I will now turn it back on Mike.

Thank you Phil.

And 2021, we continue to be focused on increasing our revenue growth opportunities.

Through diversification.

Expansion of markets and sales reach.

New product development and strategic Capex and.

And potential acquisitions.

One of the battery and your products business <unk>.

Diversification and market and sales reach expansion has meant further penetrating the global commercial markets as.

And as well as the international government defense markets.

Which has helped deleverage our historical concentration and mitigate lumpiness and the U S government defense market.

For Q1 2021.

Overall global B any medical revenue was up 32% year over year and represented 31% of total <unk> product revenues.

Demand from existing customers was strong and applications for ventilators, respirators, and infusion pumps and digital X ray and surgical robots.

We also received delivery orders for existing medical customer blanket <unk> multiyear agreements.

Our U K team delivered another solid quarter with sales increasing at a strong double digit rate.

We are expanding our participation.

At major medical device OEM customers.

And with new and existing products and.

And pursuing new opportunities and Iot applications with European customers from a new range of ER and see our products.

Regarding our oil and gas and subsea electrification commercial revenue or.

Our suite team provided approximately 17% of total battery and energy product sales.

And those sweet total revenues were down year over year due to ongoing softness in its core oil and gas market.

We saw steady signs of early improvement.

And the <unk> overall Q1 revenue exceeded expectations with roughly equal sales contributions from our oil and gas as well as our CSA of subsea battery products.

We also continue to make investments and the manufacturing capability and qualifications for suite to the more of our medical business and <unk> was recently certified the ISO $13 45 party levels for manufacturing medical batteries.

<unk> U S government defense business revenue was up 30% year over year and represented approximately 32% of total <unk> product sales with shipments primarily for radio batteries and Chargers to OEM primes the <unk>.

<unk> is also ongoing for the first article testing results of valuation and customer approval.

With our DLA.

DLA IDI cues for the next Gen and 50, 390 and newest <unk> 50, 790 primary batteries.

At the same time, we continue to be engaged with the various Dod entities and OEM primes and pursuit of other exciting new opportunities for and soldier power and charter capability.

Looking at battery <unk> energy products, new product development.

22% of revenues were from products introduced less than or equal to three years ago.

During the first quarter of 2021.

Continued progress was made on several multiyear projects.

Including but not limited to OE.

OEM public safety radio batteries.

And next generation of medical card battery.

A new military conformal battery.

And next generation Ruggedized modular large format energy storage batteries.

We also recently completed the development of our new Smart you on battery and have begun flow production volume manufacturing.

This product and future variance will serve applications under consideration.

And markets such as medical carts automated guided vehicles and robotics and we are currently targeting initial anchor customers.

In addition to the investment and new product development and multi generational product planning, we continue to deploy strategic capex investment and our facilities to strengthen our competitive differentiation.

And our Newark, New York facility and.

The new manufacturing line for our new premium lithium manganese dioxide three volt cell transitions to full production, we are fulfilling initial customer orders and and discussion with several of other potential large customers.

This new manufacturing line is also capable of producing.

A high performance variance of our new three volt cell and a similar form factor.

Using our CF ex blended battery chemistry.

The <unk> blend itself will offer significantly on a run time and the.

Thus enhance system reliability.

To address growing applications, and the Iot and remote sensor markets.

The initial trials are ongoing this quarter to validate the design and finalized technical specifications.

And China, we have completed the first phase of our project to upgrade our thionyl chloride ER. So.

This overall project involves several stages of product and process improvements.

Which will help us multiplies several fold our total available market with newly identified commercial and industrial applications.

These newly formulated and designed.

And our high rate and low rate products are now available for sampling and production ready.

And communication systems, new product development and revenue from products less than or equal to three years ago Rep.

<unk> represented approximately 25% of communication systems revenues.

Communication systems also delivered initial prototype rate of amounts in Q1 supporting of new handheld radio and enabling installation onto multiple and mobility platforms.

To include ground vehicles fixed wing and helicopters.

The initial orders are in process for delivery in Q2 with follow on awards anticipated as early in Q3 and 2021 and throughout the next three years.

The impact of COVID-19 continues to be felt the global military sales, including delays due to vehicle production lines.

Overall comp system sales were lower.

But engage my primary oil customers was sustained at a high rate using virtual tools to support technical collaboration and planning for future program Awards.

Regarding the U S Army's handheld manpack small form fit and leader radio programs.

The operational tests and the valuations were completed in Q1 with the U S Army HMS program office and.

And expectation as the U S Army and move forward with higher rates of production orders and 2021.

Based on on communication systems continued focus on the domestic military radio market and key radio Oems and <unk>.

Immunization systems remains well positioned.

For future business supporting both single and two channel.

Handheld and manpack radios and series and integrated solutions.

Updating the cutting edge server technology system integration activity mentioned and the previous earnings calls.

Upon successful completion of D O D test and evaluation.

Communications systems received the small volume initial production of order from the Dod customer with deliveries in Q2 with.

And with follow on orders anticipated later in 2021.

The system configurations of <unk> system with one housing the server and the other providing an uninterrupted power spike back up with the ancillary items.

This base configuration is expected to be filled the for another program with.

Which completed trials and March with procurement anticipated in Q4 2021.

Growth into commercial system integrations by communication system is anticipated in Q2.

But the initial order and delivery later in 2021.

This key diversification will provide strong growth opportunities for communication systems and on.

And now for broader application of our experience and past performance within the <unk> system integration and.

The new global markets.

We remain very optimistic about this emerging growth area and further expansion of the key OEM relationship.

As demand materialize in 2021.

And closing for the first quarter of 2021.

We were delighted to start the year with another consecutive quarter of solid year over year revenue growth and our core battery and energy products business.

While transitioning new products of full production and.

And investing and additional resources to capture new revenue streams.

We continue to maintain total company profitability.

Positive cash flow and a solid balance sheet.

And 2021, we are focused on obtaining initial revenue from our maturing transformational projects.

These are projects that will deliver new meaningful sustainable annual revenue streams and attractive growth markets from new competitively differentiated products.

As the recap and communication systems. These include but are not limited to potential.

Potential leader radio follow on awards.

New OEM Manpack radio and <unk>.

Integrated computing solutions.

And the next generation 21 amplifiers.

At <unk>, our transformational project list includes but is not limited to.

The new three volt product line.

The new ER product line the.

The smart you on battery product line.

The 50, 790, and XR <unk> primary batteries and.

And several other new public safety, and then sell medical and subsea electrification battery packs.

We expect completion of these transformational projects to support.

Of our strategic objective of.

Of increasing our revenue growth rate.

As well as improving revenue and EPS consistency.

As we remain vigilant and following the established guidelines to keep our employees out of COVID-19 Harm's way.

We look forward with the world and turning past the pandemic and moving forward.

We are leveraging our strong position.

And military defense.

Energy and medical.

Which are some of the largest mission critical end markets.

And do participate more fully.

And some of the fastest growing markets.

Particularly those playing a key role and critical infrastructure.

The ultimate umbrella Mega markets.

As the total company our strong balance sheet.

Solid cash flow from operation and disciplined execution of our business model by our management team.

Afford us the opportunity to simultaneously pursue organic.

Organic revenue growth of our transformation of projects invest.

The invest and new product development and strategic Capex for competitive advantage and.

And seek out impactful acquisitions.

Our goal in 2021 remains to deliver our next year.

Of profitable growth.

Operator. This concludes my prepared remarks, and we'd be happy to open up the call for questions.

Ladies and gentlemen, if you'd like to ask the question you can do so now by pressing star one on your telephone that star one if you'd like to ask a question. We'll now take our first question from Josh Sullivan. The benchmark company. Please go ahead. Your line is open.

Good morning, and and thank you for taking my questions here.

Hi, John.

Just.

Think of the portfolio of of all of these organic initiatives you have right now just from 30000 and see can you just help us organize those in a timeframe of maturity.

You have such an array of opportunities that are coming to fruition here just help us think of the cadence when these various investments should shift and the two contributors here over the next two.

12 to 18 months.

Perfect, Yes, the smart you on batteries as I mentioned and are already available on our production right now.

The first wave of project and product improvements for the ear of final chloride cells are available now.

We're starting to ship some of the initial three volt.

Iot batteries debt, we've been working on the last couple of years.

As we speak and currently ramping up that production throughout the end of this year.

And we didn't talk about it but we also have some energy storage batteries, where we ship some initial prototypes for us so and pretty much every one of those cases, we're starting to get small initial quantity.

Revenues and and now it's all about ramping it up balancing supply and demand.

And getting as much throughput for the products to get it out to customers.

And to work on our manufacturing inefficiencies as we go into a learning curve.

Alright.

And then just Relatedly you know how should we think of the the progression of margins just just as those development programs shift over.

Is there the subsequent and need to raise and sales and marketing or engineering.

Just how should we think of of the margin profile kind of improving as these development programs come to an end of it in the.

The sales kind of pick up here.

And if I look back and on scientific way.

As we put new programs in place and new products and even.

Some of the evolutionary things with recall.

Multi generational product planning, so someone had a product and the prior year.

They are of a new product that they want their product line evolves and we help them develop it.

In addition to the time to develop the product itself and meeting our technical requirements.

And many times can take of six 912 months before we're sort of hitting on all cylinders again from a manufacturing perspective so.

I think right now.

And we talk about our gross margins being impacted by product mix and there is some.

The top level of things different market segments of oil and gas versus sometimes not.

And I think mix also relates to <unk>.

Some of them the.

Legacy products versus the next generation products and how that impacts gross margin, but generally I think it's about a six to nine months.

Period, where we can get up to full production rates and.

And then start to them from the margins on those products.

Got it got it got it.

And then maybe just shifting over to the medical market in general can you just provide some color on some of those of those multiyear agreements. He mentioned on the prepared remarks.

Yes, I mean.

So it takes a long time to get the contract to begin with there is a lot of.

Requirements and the medical industry and end markets for lot of traceability and and <unk>.

Lot of paperwork has to be and order so on.

And on the front end of.

And those those projects.

And it takes a long time to get them qualified but then once we're sort of in and established pricing technical parameters and delivery requirements payment terms of things.

It's a very sticky type of relationship.

And.

Or some massive change and technical capability or mass of price level change.

And it's such a headache for the end customer to change that.

Just tends to be of very sticky and ongoing type relationship. So.

We have several of those types of relationships now.

Which anywhere from 1 million and to a couple of millions of sometimes of half a million of any given quarter will get.

The delivery order against one of those Blake and blanket orders and I comment on those because.

That's sort of our core.

Platform type revenue stream that we just sort of expect and and we track very very closely but it isn't something that sort of pokes through the threshold of sort of a big material of our strategic event that we do a press release or something for us. So.

The after like three or four years of of.

The paint and the agony, sometimes getting the from the projects through to where they need to be and getting all of the commercial arrangements worked out with our customers.

And we tend to enjoy a multiyear relationship.

After that at that point, let's just say is that.

And we get asked the question a lot about.

Medical Spike just COVID-19 or does this all go away when everybody's vaccinated and club and goes away and and what I've said and many different forms.

And from the data seems to support and the activity seems to support that.

Counterintuitively. This period of time has given us an opportunity to stay even closer with our customers and.

And not only deliver on the products that we've been delivering with these customers.

Also.

Pursue new opportunities with those same customers, because we've sort of been through the battles and the trenches together.

And kind of.

Related to debt.

And I mean, how exposed are you to kind of the the return of elective surgeries.

So just as people go back to the hospital I mean, just to your products get exposure to US is we see people return to elective surgeries.

For sure for sure I mean that was one of the things we do to fill those as really.

Think of intellectually and.

Appropriate analysis of.

And it goes into us and goes out as a result of COVID-19 and one of the goes out of was and impact of what we thought was related to the elective surgeries and not being performed and that and went through and through our calculus and to the some of the numbers, we quoted and put on our Q and so forth and so on so yes, we do have exposure to elective surgeries.

And I don't know if its massive.

From where it is right now and I can quantify the ASP.

Josh when we talked about the 32% increase and medical.

With confidence tell you that that half of that 16% of that was related to what we'll call. The the.

The COVID-19 impacts of COVID-19 surge and half of that six of the other 16% is is related to elective surgeries and ongoing ongoing increases.

I think thats of.

And solid way of looking at debt.

Got it none of it.

Very helpful.

And then just maybe on the thin cell opportunity within the within the medical field.

Any early anecdotes you can provide us there you know how the.

The uptake is coming.

It's actually moving quite well.

We're in some discussions right now that I can't get into but.

We would hope to see that increasing over the next couple of quarters and a pretty substantial way.

Got it.

And then maybe on the oil and gas market.

Where should we look for early signs of recovery for your products just in the general market are you more deep sea or land rig exposed where can we look and the open market. The C. Maybe where your products should see some early uptake.

The one number that we're most interested and Josh as rig count.

And quite frankly, what we do is every Friday morning, when we get and we are the first thing one of the first things. We looked at look at is how Baker Hughes reports, both domestic and international rig counts.

And the week over week, and then year over year and that's that's been steadily increasing the second thing and we look at which is like watching the stock price as the WTO.

And the <unk>. This morning was pushing $65 when we bought when we bought <unk>. It was it was approximately.

$62. So a combination of those two and the combination of looking at the news regarding travel is probably some of some of the bigger the bigger factors that are influencing us and anecdotally.

Listen every every Friday, we have our global sales force on the line and.

And I listened in on those calls and.

You can just hear it and the voices of of.

And the sales guys and those areas and just the amount of activity that they are being exposed to and a week to week basis.

And just the empirical data, suggesting that the activities of improving.

Got it got it.

And then just on the on the defense market overall.

We had COVID-19 impact and a lot of the testing and evaluation ranges and facilities.

And now we're obviously moving past that.

Do you think that will help with some of your products and moving contracts forward.

Just curious if youre seeing a positive trend and the.

Testing and evaluation.

Yeah on the on the testing and the valuation Josh it's always been a waiting game for us and things seem to always be delayed but there have been there has been some very positive momentum.

All of that we're seeing and.

From from our and we're pushing the testing as fast and as hard as we can and.

I think the results that we've gotten back as have been have been pretty positive, but there are there is no doubt that there had been delays over the last year and the field testing and the lab testing of our products because of <unk>.

And folks are away from their equipment and there. They are working more independently then as groups as has happened in the past. So I think there's positive indicators and the overall the overall actions that are that seem to be coming together.

And maybe I'll, just and on the large format batteries that you mentioned can you just highlight that opportunity a little bit more of it and how we should be thinking of that coming together.

Yeah.

We do.

A number of large format batteries.

Over the years, we've sold for.

Border protection.

And various places military and nonmilitary other government type applications.

The applications.

And we haven't talked about it and some time other than a pretty high level.

But we're starting to do it and.

And some initial shipments of that product is being very well received.

Some of our channel partners that are focused on on some of those systems. So.

Still to come on that but.

It's a brand new product area and I think there is a picture of it and I thought there was a picture of it and our investor presentation as well, yes, Chris.

It's a stackable large format battery that's of modular type of design that is sort of on next generation after our sort of Rob.

<unk> zero.

Multi kilowatt module battery.

Yeah, Josh desk page eight of our Investor presentation deck far left Bob.

Oh perfect. Okay, well, thanks again for taking the time to answer my questions.

Yeah.

And welcome Josh. Thank you the question.

Thank you we will now take our next question from Gary So Christine from Eliot Rose wealth management. Please go ahead. Your line is open.

Hey, guys good morning, and thanks for the thorough presentation.

I guess, starting with the suite.

You talked about rig count and WT.

Do you get the sense that it's already bottomed and have you seen that and in your orders.

Other words was.

January of the worst and maybe a little better and in February and a little better in March or.

February was the worst.

Was better.

And any level there.

Yes, it's interesting again as I mentioned on my comments they were better than we thought so maybe we were expecting the worst but it was better than we thought.

And but I also like to take the moment of the comment on the fact that we've taken advantage of the slow period with the oil and gas I mean of.

It's not something we would have wanted to predict or have happened.

But as you recall and we did the initial acquisition that we were really excited to get the people and the technical capabilities associated with sweet and so while we've gone through the ups and downs of the oil and gas market.

In the meantime, I think theres been two separate critical projects that we are doing our has done for us already.

Charge of project and they're also working on.

Some new military defense battery, so I think ultimately.

This will be a serendipitous type of a period of time, but.

We're just cautiously optimistic and the core oil and gas market.

On that.

And the over exceeding our expectations initially, but its way too way too soon to tell if thats going to continue on through the rest of this year, but the indicators seem positive.

Okay and then.

It seemed like and your commentary that we're finally, starting to see a little light at the end of the tunnel in terms of.

And a lot of these investments and a lot of these projects starting to move towards.

Fruition and.

I think you mentioned on the.

The manpack handheld leader.

You said something about testing was completed in Q1 or at least that round of testing.

Is there more testing to go or is does that mean, we should start seeing some.

Additional orders.

You may recall, there were low rate production and bandwidth and those were delivered under the contracts that we publicized and then the early part of this year.

The army went through their operations testing and evaluation.

And there's various levels of feedback we get on that and how does the product performed versus the specification and then and absolute sense houses of the overall program.

Performing versus expectations.

And and R&D.

And our indications are and our discussions with our channel partner and again separately.

Good.

And going through one of our OEM growth.

The first of all of that.

Should they go to full rate production and there could some type of.

The new process.

Over the next several months.

Board process.

By several months thereafter.

And so we're cautiously optimistic that that will actually play out the way they say it is in the third.

Other follow on opportunity for us for our theory of radio.

On it.

So does that mean, there's a shot it actually some revenue by.

And by the end of this year or do you expect it all to.

You know start next the next calendar year.

Yeah that'd be great.

And we would you would hope that it would happen sooner rather than later.

But and this overall environment all level.

Probably more prudent to think of it for 2020.

Okay, and then you mentioned.

And and communication systems of that commercial customer and that that's the.

On starting to get closer to us on some revenue for us.

And you didn't identify what the product was maybe you can't.

You certainly I guess can't mention who the customer is.

But being a commercial customer can you at least tell us.

And what vertical it sells into or a little bit on the particular industry without naming the customer.

Yeah I mean.

I don't mean to be elusive and I apologize for that but you know the product is basically taking.

The high end server product computing server product and moving the capability closer to the.

And use and.

And so it's further of field as opposed to into the sort of a nice cushy data warehouse somewhere and.

So our role here is taken very sophisticated and expensive piece of equipment and integrated and electrically weather-wise mechanically.

Into an integrated solution like we've done so successfully with the rest of the communication systems products.

And so that those.

<unk> can be served of the closest to the had need and so those activities are theres, some military applications and several different areas theirs.

Factory automation.

There is an opportunity and <unk>.

There are some opportunities on oil and gas I mean, it's just the whole concept of being able to have supercomputing powder and power closer to where it is actually used and closer to the surface versus back of some central office and our ability to integrate that solution and of battle hardened way.

And that's what it's all about and so we're we're dipping our toe on the water and some of these new markets is extremely exciting for us and.

And we think we have the solid track record leveraging our government defense integration capability and we think that's why.

The commercial OEM came to us and.

And we're starting to see some initial orders and then still on the military side, we're looking to try to have that.

The branches over into the commercial side and then it could open up the whole new end market for us.

Okay and this.

Is all around our anvil of of amplifiers.

No it's mostly around the the.

The OEM server and.

And the ancillary equipment associated with that.

Okay, but so what are we actually selling the is it it's not batteries, it's not amplifiers.

Other no other pieces of complete integrated solution just like.

There are some of the cases, where we do.

Vehicle adapters, we are providing power supplies and cooling and and all of the Io capability.

And this case, we're doing the same thing except for the the main event is high and type server.

Okay. Okay. Thank you for that color and.

And in terms of.

The three volt.

So that's a I think you mentioned to the last caller.

And that's ready to go now finally, so theres been testing and you've got the menu.

Manufacturing space and Newark, all set for that.

So we should start getting some revenue is out of that either and this quarter next quarter.

Yes, we're starting already to see some of revenue some smaller revenue, but it's immaterial to our results at this point, but we are shipping commercial product customers right now.

Okay and.

So so and the commentary you talked about the COVID-19 cost the six cents on the quarter. So.

Everything else being equal and I guess, Oh of it hasn't really started last year.

So.

You would actually done closer to 11 and.

The quarter versus eight cents last year and.

And the absence of COVID-19.

And then last year ahead in <unk>.

Some shipments from that.

One time and contract so I'm just curious.

And if it's apples and apples.

Instead of earnings if you take that out from last year that didn't repeat this year.

Last year than a nickel or <unk> and then without COVID-19 would we had been at 11 and is that sort of what you think would have happened the apples and apples.

Yeah, Gary I think your math is your math is pretty accurate.

What what I do is I tried to be as is intellectually honest and as precise as I, possibly can be when I look at the of the impact of COVID-19. It's it's literally a list by customer.

And confirmed at.

The incremental cost to the my new level.

And it's a.

It's a number of debt debt.

And I'm very comfortable with and the accordingly, that's why it's in our and.

And our releases and our comments.

And when I look at last year.

There was a significant amount of shipments.

Made by Communications systems, It was a big and it was a challenging.

Our year over year comparison, and I think the team did did well.

But getting getting down to your numbers.

It would be in the in the 11% range and last year, if I, if if I took out the impact.

Of the big shipments.

It would be and the range that you've that you mentioned maybe.

And maybe even a little bit less.

Okay and.

So the <unk>.

Those shipments last year, I guess completed in Q2 of last year.

So.

This should be our last Q2 should be our last tough comparison.

And then maybe we could start.

No you don't forecast, but it sounds like we're setting up the.

Have positive comparisons starting in Q3.

On the earnings front.

And I think Mike you did say in your closing comments that the.

Are you you're hopeful that.

We can increase our earnings this year versus last year growth profits.

So that would imply.

A pretty nice potential and the back half after we get through.

The Q2, which could be the last negative comparison of I mean is that all fair.

Gary what we're trying to always do better year over year by quarter and total year and we provide the information for people to be fully transparent as to what the circumstances present themselves COVID-19 what the impact we think that is but on a day to day basis running the business. It's all about execute.

And on these transformational projects on and get the projects done and we're making some investor extra investment to make sure they get done and not only get done just to be done Mcdonough and actually are are hitting the objectives in terms of performance and economics. So.

We provided the information that we think.

With flow on the mathematical perspective.

But on a day to day basis, it's all focused on execution and.

The control of the things we can control.

And.

And just.

Difficult to from.

From a year over year basis take last year's successes of the reason that we don't get year over year improvement. This quarter, we just don't and we just don't run that way so.

We try to do a very transparent job and providing the numbers that we have.

And but this is really all about getting the transformational projects done and.

Improving the execution and efficiency to get those margins back up.

Understood.

You didn't say anything about M&A and the quarter.

Can you.

With that 100 million shelf of $100 million shelf you file plus.

Plus the line of credit being $30 million, plus and now having pretty much cash no debt.

And you get a lot of ammunition.

Can you sort of tell us what's going on there is anything getting close do you have four of five companies you've been talking to them for six months of 12 months.

And I guess, what are the odds of the possibility of.

Some.

A significant game changing acquisition and the back half of the year.

But Gary I'm, not going to get into the specifics, but I will tell you and I am spending.

And some and some cases the majority of my time.

With the certain other of very very knowledge of industry knowledgeable individuals.

Trying to find the right acquisition for us that meets that meets our criteria.

There's a lot of companies out there that are that have a lot of sizzle and and that's really about it.

Our criteria for M&A have not changed and we look back we look back at the great contribution that <unk> has made the great contribution that suite has made.

The accretive since day, one both for every quarter.

Sure.

And we're looking for of companies that meet our criteria and that will allow us.

And to continue our profitable growth.

The.

And while at the same time.

Expanding our end market diversification.

And very active involvement and I'll leave it at that.

That's great that's great and we.

We didn't talk a lot about the IDI cues is it still $70 million to $80 million or more and.

Maybe I missed it maybe you could describe the the product and didn't use the word idea of Q, but are those sort of moving through testing and I know you said theres been some hesitation and testing and maybe it will get better.

As COVID-19 mitigates, a little bit, but is that getting closer to a potential rev.

The revenue opportunity this year.

For sure. This is something that we review every three weeks personally.

And the latest updates we're working through the process and fits and interim process with the government.

And we're getting close to it and I would hope that $53 90.

The next John would be finished up in the in the summer timeframe.

And hopefully the $57 90.

That testing would be done and the fall of late fall timeframe.

And then we'd have we are ready to go for delivery orders. So.

And is an iterative process and as Josh mentioned, there has been some delay and some of the testing and evaluation with people in and out of.

Of the offices, but.

We haven't taken our eye off and we keep pushing it and at the same time.

We've got a lot of other things on our plate to so we're trying to make sure you're of the right visibility we of the right people involved and we're trying to get through this process, but yes. That's about the timeframe late summer of $53 90 hook through fat and then.

And the volatile late fall hopefully of $57 93.

Okay. Thank you for that color Mike.

So just to conclude I mean.

And I can't you and I've been a long term shareholder and the follower I can't remember another time and in the last decade. When the company has been is if you will is pregnant as you are now with opportunity.

Maybe the gestation has been longer than nine months and we're waiting for this baby the crown but.

It seems and once we get through the the last negative comparison in Q2.

And some of these things whether it's the three both of the idea of IQ.

The the handheld the leader.

And the manpack.

The commercial customer.

On a comp comm systems.

And the recovery in the suite and in oil and gas.

The continuing recovery of elective surgery, and and medical I mean, my God, we're tremendously pregnant and it seems like we could have quintuplets as these different projects.

And start shipping and then as you move into full production and the margins increase.

So im.

And Im looking forward to some of the fun coming coming up very shortly it seems of where we're on the brain. So thanks, guys and congratulations.

Thanks, guys appreciate it.

Thank you.

And that will conclude today's Q&A and I will now turn the call back to Michael for closing remarks.

Alright, great well. Thank you once again, everybody for joining us for the first quarter of 2021 earnings call.

We really look forward to sharing with you our quarterly progress on each quarter's conference call and the future. We did update as Phil mentioned, the Investor presentation. The website as we do each quarter so check it out.

Everybody have a great and and safely. Thank you very much for participating.

Ladies and gentlemen, and that will conclude today's conference you may now all disconnect.

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