Q2 2021 Ultralife Corp Earnings Call
[music].
Good day of well come to the.
The Altra Life Corporation second quarter 2021 earnings release conference call at this time for opening remarks, and introductions I would like to turn the call over to MS. Jody Buffini. Please go ahead.
Thank you Sharon and good morning, everyone. Thank you for joining US this morning for Ultra large corporations earnings conference call for.
As of quarter of fiscal 2020, 1 with US on today's call are Mike Pawluk Ultra life's President and CEO and Philip Fain Ultra lives Chief Financial Officer. The earnings Press release was issued earlier. This morning, if anyone has not yet received a copy I invite you to visit the Companys website www ultra at the core dot com for Ya.
You'll 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.
The <unk> 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.
Risks and uncertainties that could cause actual results to differ materially include the impact of COVID-19, Chris.
Reductions in revenues from key customers acceptance of our new products on a global basis and uncertain global economic conditions. The company cautions investors not to place undue reliance on forward looking statements.
Places of the company's analysis only as of today's date.
The company undertakes no obligation to publicly update forward looking information to reflect subsequent events or circumstances further information on these factors and other factors that could affect ultimately the financial results is included in the company's filings with the securities and exchange.
The commission, including the latest annual report on form 10.
On today's call management will refer to certain non-GAAP financial measures that management considers to be useful net metrics the differ from GAAP.
Non-GAAP measures should be considered as supplemental to corresponding GAAP figures.
With that I would now like to turn the call over.
Over to my 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 Q2.2021 operating performance.
After which I'll turn the call over to Phil who will take you through the detailed financial results.
When the bill.
I'll provide an update on the progress against our 2021 revenue initiatives then open it up for questions.
For the second quarter of 2021 the.
The company gained quarter to quarter with sales, increasing 3% and.
An operating profit of 14%.
Year over year.
Revenues in our oil and gas end markets rebounding rebounded growing 49%.
Medical sales of abated from last year's Covid related demand spike.
Yet we are above pre pandemic levels in.
And sales from government defense customers were soft relative to last year's strong shipments of vehicle adapter.
The span of sales under the U S Army of network monetization initiatives.
As well as our $53.90 legacy primary batteries.
Supply chain and logistics continued to be the source of operational challenges delaying some shipments and increasing freight costs.
Given our solid liquidity position we increased.
<unk> investment.
And Capex in critical engineering resources to support new contracts and.
And completion of the transformation of new products.
Although these incremental costs of investment weighed.
Weighed on operating profit and net income year over year comparisons.
Sequential earnings per share grew 20%.
System strength of gains in commercial sales.
In a few minutes I will give you further information on our revenue initiatives, but first I'd like to ask <unk> CFO, Phil Fain to take you through additional details of the second quarter 2021 financial performance Bill.
Thank you, Mike and good morning, everyone.
On the earlier this morning, we released our second quarter results for the quarter ended June 32021.
We also filed our form 10-Q with the SEC and of updated our Investor presentation, which you can find in the Investor Relations section of our website I would like to thank all of those who help make this.
For the second quarter consolidated revenues totaled $26.8 million.
Compared to $28.6 million reported for the second quarter of 2020.
A decrease of 6.3%.
Commercial sales declined 1%, reflecting a rebound in oil and.
In gas and international industrial markets offset by a reduction in medical sales from the initial surge of batteries for ventilators respirators and infusion pumps in response to COVID-19 in last year's second quarter.
The government defense sales declined 13, 2%.
Relative to the completion of contracts in last year's period.
We estimate that our second quarter sales were reduced by approximately 1.5 million due to operational challenges associated with supply chain and logistics delaying sales to future periods.
Most node.
Notably in the medical and government defense sectors.
Revenues from our battery and energy products segment were $22.9 million compared to $24.8 million last year, a decrease of 4.8% of.
<unk> 2 of 48, 6% increase in oil and gas market sales.
And the 23, 2% increase of 9 volt sales.
Offset by a 27, 9% decrease in medical sales.
And of 12, 7% decline in government defense.
The decline in government defense sales resulted from the completion and last year's second quarter.
<unk> of of $53.90 battery order placed in December 2019 by the U S Department of defense.
The sales split between commercial and government defense for our battery business was $70.30, compared to $67.33 for the 2022nd quarter and the domestic.
Domestic to international split was $52.48, compared to $59.41 last year.
Both demonstrating the continued success of our global revenue diversification strategy.
Revenues from our communications systems segment were $3.9 million compared to 4.
$5 million last year, a decrease of 13, 9%.
The decrease reflects 2020 shipments of vehicle amplifier adapter systems to support the U S Army's network modernization initiative.
Completing the delivery orders announced in October 2018.
Kind of consolidated basis, the commercial to government defense split was 60.40 versus $57.43 for the year earlier quarter.
Our consolidated gross profit was $7.3 million compared to $8 million for the 2020 period.
As a percentage of total revenues.
<unk> consolidated gross margin was 27, 1%.
Versus 27, 9% for last year's second quarter.
Gross profit for our battery and energy products business was 6 point of $1 million.
The same as reported last year.
<unk> margin was 26.3 per.
Percent, an increase of 120 basis points over 25, 1% reported last year, reflecting favorable sales product mix and lower scrap and rework on new products transitioning to high volume production.
For our communication systems segment gross profit.
<unk> was $1.3 million compared to $1.9 million for the year earlier period.
<unk> margin of 32, 1% comps.
Compared to 42, 8% last year.
Merrily, reflecting the favorable sales mix in 2020 of the vehicle amplifier adapter systems for the U S.
Army operating expenses increased <unk> 5 million or 9% from $5.7 million last year to $6.2 million.
This increase includes our investment in engineering resources for new product development <unk>.
Including resources dedicated to the current formal wearable badge.
<unk> contract.
<unk> on May 17th.
As a percentage of revenues operating expenses were 23, 1%.
Compared to 19, 8% for last year's second quarter.
Operating income for the second quarter of 2021 was $1.1 million.
<unk> compared to $2.3 million for the 2020 quarter.
Reflecting our investments in new product development delayed shipments due to supply chain and logistics challenges and sales mix.
Consequently, operating margin was 4.1% for the 2021 period versus 8.
The last year.
Adjusted EBITDA defined as EBITDA, including noncash stock based compensation expense was $2.2 million or 8.2% of sales compared to $3.3 million or 11, 6% for the second quarter of 2020.
On a trailing 12.
Percent basis, adjusted EBITDA inclusive of the $1.6 million proceeds of the class action lawsuit settlement announced in Q4 was $9.7 million or 9.1% of sales.
Our tax provision for the second quarter was <unk> 2 million compared to $1.5 million for the.
$12.20 quarter computed at 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 second quarter is based on an effective rate of $23.
2%, while utilization of our deferred tax assets will drive the tax provision down to only 71.
Or 6.6% when we pay our taxes.
We expect that the net operating losses and tax credits included in our deferred taxes will offset all U S taxes.
<unk> 'twenty foreseeable future.
Using the 23, 2% statutory tax rate net income was <unk> 8 million or <unk> <unk> per share on a diluted basis for the 2021 second quarter.
This compares to net income of $1.7 million or <unk> 10 per share on a diluted basis.
For the 2020 quarter.
We utilize the adjusted EPS to reflect actual taxes paid or to be paid and define adjusted EPS as EPS, excluding the provision for non cash U S taxes expected to be fully offset by our net operating loss carryforwards and other.
Tax credits.
As noted in the supplementary table in our earnings release adjusted.
The adjusted EPS on a diluted basis was <unk> <unk> per share for the 2021 second quarter compared to <unk> 13 for the 2022nd quarter.
We estimate that the delayed shipments resulting from supply chain.
And logistics challenges in our investments in new product development resources adversely impacted EPS for the 2021 second quarter by approximately <unk> <unk> per share.
Ultralight further strengthened its balance sheet and liquidity in the second quarter with cash on hand.
16% to $15.8 million and debt decreasing 37% to <unk> 7 million from the first quarter.
We ended the 2021 second quarter with working capital of $48.8 million and of current ratio of 4.1.
Compared to $45.8 million and $3.4 for year end 2020.
The answer result, we remained well positioned to fund organic growth initiatives, including new product development and strategic capital expenditures, while expediting, our organic growth through accretive M&A.
And going forward with a resilient business model ample liquidity diversified end markets and growth initiatives. We remain steadfastly focused on realizing the full leverage potential of our business model I will now turn it back to Mike.
Thank you Phil.
During the quarter, we continued to advance our revenue growth strategy consisting of.
Market and sales reach expansion primarily through diversification.
New product development with strategic Capex, when appropriate to drive competitive advantage and.
And a disciplined approach to acquisitions.
Quickly gain.
Resources scale market access technology and new products.
At our veteran of energy products business market and sales reach expansion of its been about diversifying more into the global commercial and international government defense markets.
To lessen our revenue fluctuation as a result.
<unk> of Lumpiness in our core U S government defense business.
Medical has been a key target area and for Q2.2021.
Overall global battery energy products medical revenue represented approximately 29% of total <unk> sales.
Demand from existing customers.
Strong and.
In applications for ventilators, respirators, and infusion pumps digital X ray and surgical robots.
We also received over $8 million in delivery orders from existing medical customer blanket <unk> multiyear agreements.
With respect to our oil and gas.
<unk> was in subsea electrification commercial revenue.
Our <unk> team provided approximately 20%.
Of total battery and energy product sales.
The overall suite revenues were down slightly year over year.
Due to the non recurrence of of short cycle medical product build last year to support the Covid response.
We continued to.
The encouraging signs of improvement in <unk> core oil and gas end market.
As revenues to these end markets in Q2 were up a strong double digit rate year over year.
For <unk> U S government defense business, which represented approximately 28% of total <unk> product sales.
Shipments.
Gas, primarily for radio battery and Chargers to OEM price.
In Q2 revenue was down year over year as stated earlier. However, the highlights of the quarter actually came from 2 noteworthy opportunities that we have been developing for some time.
First of all of.
Our first article testing.
<unk> for the next generation <unk> 590 primary battery.
Was finally completed and approved in Q2.
A key milestone in the development cycle for U S government defense products.
Once the Dod wraps up 2 remaining reports of improve as other 1.
We will be eligible for delivery orders and the potential revenue streams.
<unk>.
So by nature with IDI Q government contracts, there are no guarantees of any future orders.
The historical revenue average.
Over the last 11 or so years.
Has been about $3.5 million per year.
With revenues in any given year.
Ranging from the hundreds of thousands of.
$1 up to almost $10 million.
Secondly, <unk>.
Regarding an exciting new opportunity per unsold your power capability on.
On May 17, we were very pleased to announce that we were 1 of 4 companies awarded an idea of acute contract under.
Under the U S Army's 125 billion.
The branch conformal wearable battery program.
Our potential contract is not to exceed $168 million during the 3 year base of award period.
With the potential for up to an additional $350 million should the 6.1 year option periods all of the exercise.
As of the case in any indefinite delivery indefinite quantity Iq contract.
The timing of deliveries and quantities are at the discretion of the U S Army.
And include successful completion of first article testing.
Demonstrating full compliance with the contractual product specification.
And program requirements.
We are currently aggressively pursuing the development and sourcing phase of the process the.
The additional engineering and Capex resource investment.
To meet an ambitious that schedule.
That is expected to finish in early 2022.
With potential production awards thereafter.
As just illustrated new product development of remains a fundamental part of our organic growth strategy.
In addition to the new product development associated with the next generation of 590 battery.
And the new conform of wearable battery.
We advanced several other multi year transformational projects during the quarter.
Regarding our next generation Hot Swappable medical cart battery.
We are in the process of completing certification testing of key component.
And plan to have demo units at an international location within the next few weeks.
The support targeted customer transaction for a strategic channel partner and.
And we're also showing prototypes.
New product in August.
At a major trade show in the United States.
Also volume production manufacturing continues.
In support of existing customers for our recently competed completed new smart <unk> batteries.
In addition, we have roughly a dozen or so of new customers.
Types of the currently evaluating our version of this workhorse form factor product, serving numerous application under consideration in markets such as medical carts automated guided vehicles and robotics.
Regarding the new 50.790 in excess of 1238 <unk> blend.
As Mary batteries.
We are currently targeting completion of the $57.90 of that testing later this year.
And have a specific customer project evaluating the new XR went to 3 a battery back from a medical application.
These new <unk> blended products.
We remain on our.
Primary of our customers' priority list.
Given their higher energy and longer run time.
We also continued to mature opportunities with our OEM public safety radio batteries.
And next generation Ruggedized modular large format energy storage battery.
Regarding.
Adding efforts to expand our competitive differentiation, we continued to invest in strategic Capex.
The new manufacturing line at our Newark, New York facility for our new premium lithium manganese dioxide 3 volt cell is now fulfilling initial customer orders.
We have also received our first large OEM order.
From a major illumination customer.
We're 500000 pieces.
To be shipped throughout the balance of this year.
And are currently in negotiation.
For potential volumes in 2022 and beyond.
The discussions continue while testing of product evaluations are underway with approximately 20% to 30 customers.
With the approximate individual lot sizes, ranging from 300000 to 3 million units per year.
Initial voice of the customer feedback shows positive responses from our products power safety.
And contribution to the OEM devices competitive differentiation.
And.
China.
The performance attributes of expected from the completion of the first phase of our project to upgrade our final chloride ESL and now being confirmed by customer testing.
This is exciting as to date, we of approximately 15 to 20 customers and.
In various stages of project evaluation and commercialization.
As we ramp up production.
Representing roughly $8 million to $10 million of opportunity over the next 1 of 3 years.
As you may recall the.
This overall project involves several steps of product and process improvements, which.
Which will help us multiplied by several fold our total available market with.
<unk> the identified commercial and industrial applications.
Another area, where youre seeing clear revenue growth opportunities emerge is in the application of our thin cell battery for wearable products and vital sign monitoring applications.
Also medical and other industrial customers continue to tap into.
Of our China operations for.
For supply of battery pack solutions, not just ourselves.
Which is growing our value proposition.
In Q2, our total China operations revenue was up sequentially from Q1 by over 49%.
An indicator of growing global demand.
For our China.
Ana capabilities.
Our goal remains to produce the highest value of proposition best quality and safest products in whichever 1 of our global locations.
The third to the supply chain of the particular end market <unk>.
<unk> OEM customer.
Looking at communication systems.
Q2, new product the bump in revenue from products less than or equal to 3 years old represented approximately 13% of communication systems revenues.
Communication systems completed initial orders for radio amount of deliveries in Q2 in support.
Of our previously mentioned new handheld radio.
Which enables its installation on to multi.
<unk> ability platforms to include ground vehicles fixed wing and helicopters.
Follow on awards are anticipated as early as Q3.2021.
And throughout the next 3 years.
Regarding the U S Army's handheld manpack small form fit and lead the radio program.
We are awaiting the potential for.
For our next round of awards for the leader program later this year.
With delivery as possible in 2022.
As the radios are a critical driver of the communication systems business. The team is continually focused on the technology innovations market trends and customer requirements.
To position us for future business.
Supporting both handheld the manpack radios and integrated system.
The impact of COVID-19 continues to be felt within global military sales.
Lowering the volume of sales and delaying program awards.
Additionally, the supply chain issues continue to impact electronic component availability.
The resulting in extended material lead time manufacturing timelines and clouding revenue forecasting.
Our supply chain components that are available the shortage of global transport resources is causing delivery delays.
Often compounded with increased transportation and logistics costs.
Our teams.
Teams are working closely with suppliers to actively managed sales and operations planning protocols to mitigate supply chain and manufacturing impact to.
To the extent possible.
Communication systems has also been working to expand into the commercial market with multiple system integration product initiatives with several key customers.
We are pleased to have been recently selected for the development of production of our mobile data card.
That will enable analysis of autonomous vehicle data during testing and manufacturing of the vehicle.
If successful this would be 1 of the first purely commercial product offerings from communication system.
Initial prototypes are in development.
EBITDA in Q3 with potential production of ours to follow close behind to meet customer program requirements.
Separately. We are also in the prototype phase for a Virtualized radio access network and closure supporting <unk> network deployments worldwide.
This is our second all commercial business opportunity.
<unk> and we anticipate first low volume orders in the fall of 2021 and production volume to pick up in 2022 and beyond.
The expansion of my communication system into commercial products and integration of <unk>.
<unk> of the door to solid global growth opportunities in broader applications.
Leveraging our engineering expertise and experience with systems.
System integration of Sophistic communications equipment components used by the government defense customers and difficult environment.
This diversification into commercial products.
With our participation in the ongoing military radar program grounds, our optimism about the long term growth of the communication systems business.
In closing for the.
The second quarter of 2021.
Although some of the year over year Comparables were different.
<unk>.
We were pleased to see revenue and earnings gains.
1 of the quarter throughout the company.
While overcoming some expected nonrecurring year over year revenues navigating timing.
<unk> and cost impacts from supply chain and logistical challenges and.
And stepping up Capex and testing of resource investments in new products and new contracts.
We maintained total company profitability positive cash flow and a solid balance sheet.
Our top priority is to continue to continue to move forward.
And the revenue realization from our transformational projects.
The bring new meaningful sustainable annual revenue stream in attractive growth markets from new competitively differentiated products.
At communication systems. These projects include potential leader leader radio follow on awards.
New OEM manpack.
<unk> radio Antares.
The integrated computing solutions.
The next generation 21 amplifiers.
At <unk>.
Transformation project list includes.
The new 3 volt product line, the new ER product line the <unk>.
You won battery product line.
The 50.790 <unk>.
<unk> blend primary batteries.
And several other new public safety, <unk> medical and subsea electrification battery packs.
Our strong balance sheet.
Solid cash flow from operations and disciplined execution of our business model.
Afford us the opportunity.
The simultaneously pursue organic revenue growth through our transformation of projects.
Invest in new product development and strategic Capex for competitive advantage.
And sika impactful acquisitions.
With the aim.
Of growing the business with profitable revenues.
Each and every year.
Operator this concludes.
In my prepared remarks, and we'd be happy to open up the call for questions.
Yeah.
Thank you, ladies and gentlemen, if you would like to ask the question. Please take note by pressing star 1 on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach of the equipment well cost of just a moment.
To allow everyone an opportunity to stating the full question.
Okay.
We will now take our first question from Mr. Gary Stein from Eliot Rose wealth management. Your line is open. Please go ahead.
Good morning.
Good morning, Gary.
The first of all congratulations on that conformal battery win.
Ed.
$500 million over 10 years, it's a pretty sweet deal to win I know, it's an idea IQ I know it's not guaranteed.
Well thats pretty intriguing.
And then if you look.
At the $168 million over 3 years debt also averages over $50 million per year. So if they exercise all of the it's 500 million over 10 years if.
If they do the 3 years its $50 million over those 3 years, if they do the maximum.
So that's a wonderful.
And I just wanted to start out by congratulating you on that.
Okay.
Okay.
My first question is you know go into the basic business.
Starting with medical So you you had the the surge last year for Covid.
The which made it a tough comparison.
But then you mentioned in the release of.
The medical is still even though it was down because of the tough comparison was still.
Increase from pre Covid.
Levels.
So that's encouraging and I guess my question is.
How are you.
Seen any more of the Covid type orders come in now with the Delta variant in the hospitalizations, increasing and then secondly, if.
If not or not yet do.
Do you feel the overall strength, so that it's surpassing pre COVID-19 levels.
Due to the fact.
The with vaccines and and.
Getting sort of back to normal despite the delta variant of elective procedures are increasing.
Yes, I mean, there's a couple of pieces there Gary.
In terms of the salient impact on our revenue in.
<unk> debt relative to the medical.
The demand I think the biggest impact we're seeing.
Either way, it's been in some of the supply chain challenges were.
Some of the components of a more difficult to get and there's been some delays.
Not only from the standpoint.
On the earnings our ability to provide for our customers, but our.
Our customers being able to provide for their customers and so there is somewhat of a cascading effect, where some of the the demand has been pushed out a little bit.
By the same token.
We have also.
The new that there were some.
The early parts of the year, where we had some very high year.
Year over year compelled comparable as to overcome and we were actually delighted in Q2.
To get a number of.
New orders from longstanding customers that aggregated the close to $8 million or $8 million that I mentioned.
1 of my prepared remarks, which if you may recall from previous earnings calls in the prepared remarks it's.
It's about double.
What we typically see in the quarter so.
Obviously disappointed that things get the deferred in the revenue doesn't actually come from the timeframe, we'd like it to in the earnings results, but very pleased.
He has to see that those customers haven't gone away and there are still placing orders in and we will make it through the supply chain challenges.
And get back to normal hopefully sooner than later, but we're.
We don't know what we don't know relative to the latest round of the.
Variance of Covid.
But what we can say is that.
Experience, whether it be the.
The increase demand for our products over the last year or so or working through some of the challenges of supply chain logistics that we have gotten very close to our key customers and thats, probably the biggest benefit in sort of line of this whole thing is we've gotten very close to our key customers.
I'm confident that will.
Through the dividends as we go forward.
Mike does that $8 million in blanket orders is that for 1 to 3 years.
No that's a much shorter timeframe, that's those tend to be more over the next 12 months or so.
Wonderful, Okay, and Thats up 100% from previous blanket orders.
Yeah.
Yield.
My second question.
Deals with sweet.
So.
The 49% increase.
As rig count came back I think Rick right now and maybe I'm off on this but last I looked was double.
From the Covid.
March 2020 lows.
I don't know you might have something new on that that's fine but.
But I sort of double so the improvement in Sweden.
On the oil and gas side not the subsea side is that mostly due to the increase in rig count and oil staying at about 70 of barrel and us.
Is that at a level of that was pre COVID-19 or is that the Uh huh.
As the ways to go.
No Gary.
We look at the number of variables and the variable as we look at are not just the domestic rig count, but we look at the Canada rig count the international rig count.
Theyre all up from from when Cold.
Covid started.
And we then breakdown are our sweet business into really 5 components, we break it down into the downhole drilling pipeline inspection subsea.
Platform products, and we break it down into the great medical work that they've done and what we're seeing in Q2 of the orders come from it's.
Total drilling.
And that's its price its a its rig count and you know 1 thing we're seeing is that the demand is more global so we're really seeing a 50.50 split in the suite business between international and U S. So it's a it's a pretty favorable trend that.
That we experienced in Q2.
Thank you Phil.
Is it.
I don't think of any of us expected to necessarily get back to where it was years ago.
In light of the new environmentalism out there but.
Do you expect it to maybe get to 75% of prior levels and if that's the case.
Case, whatever level, you expected to get get it too.
Is that where it's at now or is it still have to go up another 50 per cent or something.
Well I can I can respond to that Gary I think we had a very solid second quarter and the question being what are the next couple of quarters, it's going to be.
Looking like.
As of Q2 of catch up blip or what are we going to see in the remaining literally 3 of 4 quarters going forward.
You know there certainly is.
The increase in W. T I when we bought suite <unk> was $62 at 70.
$2.50, right now.
As Mike mentioned in his remarks, there is not of lot of forward visibility of it with the major customers that we deal with you got to call you got appeal. They wanted they wanted as soon as possible, but with increased travel and.
The increased usage of of.
Of oil and gas.
Hopefully in a post COVID-19 period, the trend should be favorable now to answer. Your original question. We were trending and this was all disclosed in our case in our Qs and all of that we were trending around $7 million.
Quarter 4 force suite when we when we initially.
I would say right now, we're probably 70% 70% of of.
Of of the running rate of of where we were so certainly of ways to go but then again, we have improved our business model as well as we talked about in the past calls.
Yep Okay.
Thank you that's good color.
Mike on the on the 3 volt opportunity with.
Remote sensors and the other internet of things.
Opportunities.
Do you see that the 3 both as you mentioned you know there is China orders and you've mentioned.
From various.
Customers looking for tens of thousands hundreds of thousands of $1 million million plus units.
Does that represent ultimately of 3 to 5 million dollar of annual run rate of opportunity.
Or what would be a fair number.
A member of the transformational projects.
<unk> center, following the $8 million to $10 million range.
So whether it be transformational we want them to have a meaningful impact on our overall revenue trajectory.
And so when we look at the investment that was made for the 3 volt and Newark.
When you look at what the capacity is expected to be.
We.
We expect the capacity could be more of them you know the 9 of $10 million.
<unk>, a year, which would say that the revenue is.
As higher closer to $10 million potentially per year than some of the numbers that you've just mentioned.
Oh wonderful, Okay, Gee, that's like almost triple what I, what I thought the potential.
That's great.
Secondly.
I'm sorry, Gary.
I apologize for interrupting the.
The number of different opportunities that we have range in various sizes. So.
We don't want to do 100% of the the volume with the real low price type customer and we want to have a nice mix blend of all of it.
Various different.
Different customers. So we don't have all of the rags in their own basket.
Single basket.
We have the XR 1238 product line that we could build on the same line as well so.
We're looking at a lot sizes from the plan of thousands of $3 million per year per a single customer.
But with multiple customers, providing a nice blended mix.
Mix from.
From a delivery timing standpoint, as well from.
Margin.
The as well.
Understood wonderful $8 million to $10 million. That's that's that's super you.
You mentioned the this new emerging opportunity in comm systems on commercial side with the mobile Datacom.
The opportunities et cetera, where you might start getting some.
Production orders.
Before the end of the year and count and then follow on for calendar 'twenty 2.
Is that considered a transformational opportunity like like the repo, where it's 8 the plan or is that of $3 billion to $5 billion opportunity.
Certainly we take liberties in what we call transformational or not but.
I look at the its transformational on the number of different ways.
When you think back and you've been with.
This stock since I've been here at least that I remember, where we were pretty much of a component manufacturer.
Income systems.
<unk> and very sophisticated component, but nevertheless, the component manufacturing and we've gone into new platforms, where we have the integrated type solution.
And I look at this next potential step and we're still not there yet, but the indications of favorable this net.
Big step has been taken even further and taken.
Hyatt and integrated.
System type of capability.
And putting it into a brand new end market.
Our new platform is the way I would.
Look at it so.
It's the transformational in terms of.
Broadening the lanes of which the communication systems business gets the play it's transformational because it's the and integrate.
<unk> taken a solution versus just the components and from the.
The economic rewards of being a key supplier in that area I think some of the biggest contracts that we've announced over the last couple of years have been in the area of integrated solutions.
I guess to sum up I would say its transformation both in its diversification of the end markets for communication.
<unk> systems as well as the potential impact on revenue.
No.
Okay, that's wonderful as well.
Moving to the.
Previously awarded 80 million dollar IDI cues I guess they were spread between the $53.90 in the $57.90.
You mentioned that $53.90 is completed.
Great.
The final testing and you're just awaiting orders.
And then 57 of 90 later this year might complete testing.
Do you think youll get any.
There's this calendar year and the 50.790, if the completed testing of October November maybe a little revenue at year end or is it all of 2000.
<unk> true revenue on the 50.798.
We're really trying to focus on completing the testing and we know that the revenue opportunities are there and I wouldn't want to jinx myself or get ahead of ourselves.
The revenue until that testing of this time, we know that these are long and lengthy testing and that's quite frankly were making.
20, <unk> investment in the kind of fall.
First article testing opportunity, because we know how difficult they can be and how demanding the end user customers can be.
And so.
It is an appropriate way to comment on potential revenue from the 50.790 at this point.
Okay, and the $80 million idea Q again is 8 to 10 years. So.
I guess.
The combined $53, 90% of 50.790 of that $8 million to $10 million annual revenue opportunity. So it fits into your trans.
Transfer massive transformational revenue range.
That moves me onto another revenue stream. So the the ER product line in the smart <unk> batteries.
Is that.
The addition transformation of that $8 million to $10 million or is that smaller more of a 3 to 5 million of opportunity.
No I think the I think the certainly the the ear product line.
And now this has all been about doubling and tripling quadrupling in silver available market.
But we definitely believe that debt.
So it has the opportunity to be in the $8 million to $10 million revenue range over the next 1 of 3 years.
Okay, that's great too.
Alright, moving too.
Yes.
Radios.
So.
Originally the contract was $2.3 billion.
For 10 years to Harris <unk> Harris now Harris.
Paris Communications and in the palace.
So we thought it was.
Down the middle So I guess 1 million 150.
1 billion of $150 million each over 10 years et cetera. So I guess my first question is.
Yeah.
Is it my understanding as I was.
The transcript for the first quarter conference call that all 3 Harris day and in that conference call.
They mentioned that they had completed testing final testing and final production on.
Pam.
Held.
The manpack.
Manpack I believe.
Handheld and then they expected I think it was leader shortly.
And then on <unk>.
Do you intend to just last month, the Paris Global Communications was awarded of $3.3 billion contracts per radios communications the midstream.
Perhaps et cetera.
Completion date of 2020 ships, so the $3.3 billion over the next 5 years.
So I'm a little confused so.
Is that $2.3 billion over 10 years as far as you understand still the main modernization radio modernization contract.
And the $3.3 billion of something else or is the.
$3.3 billion debt was awarded the exclusively the Harris.
Just the updated version of the 2.3 where they increased it by $1 billion gave it all to the Harris <unk>.
And then.
I haven't seen an announcement from cash.
Palace, So I don't know if I missed it or it's not public but.
Is <unk> still involved so I guess im asking you just to clarify the NIE.
Moving on the $2.3 billion of original contract. The recent $3.3 billion from Harris and his tireless stand in the mix as far as you know.
Yeah, Gary I could take debt the original.
<unk> leader radio contract has not been modified and DAP and map.
Modified at all anything that you may have heard of red subsequent to that point in time.
It is likely of another another project and other radio of theirs.
There's a lot happening in radio communications without a doubt.
But.
There has been no change and at least thus far and low what we have been made aware of as 2 regarding who is going to get the future leader Radio Awards.
In the original $2.3 announcement it we said it would initially be 50.50, and then it would be competitively bid so we sharpened.
Our pencil in the.
And refine our product along with with with with the <unk>.
Our radio partner.
Non stop so.
And you May have seen several awards announced by Harris of couple of awards. It doesn't mean that <unk> didn't get the awards.
It means that tell us likely service those awards through through existing inventory so as it exists right now.
<unk>.
It's right down the middle it's it's fair game going forward with with no changes that at least we're aware of.
Okay.
You sell batteries the Harrison.
The amplifiers and other accessories Viper etcetera to talent.
So you remain designed in to the both of those products that just you know.
Both of both of those companies products that baseband Harris the statements have basically finished.
The testing so they're going into a full rate full run production low rate I'm in full rate production from low rate initial production.
And maybe that June 10th award the $3.3 billion as the government's recognition that they completed testing and the needs of that full rate production orders that are that are coming now.
I guess my question is in terms of batteries, the Harris and amplifiers to talus.
Do you guys represent.
In the in the final per.
Price of these radios do you represent 5 per cent of the of the business of 10% I mean, the the corner.
Gary I don't think it would be appropriate to even try to speculate what that is we're not we're not we don't have access to <unk>.
Any potential Oems final pricing.
And what I will say about the these overall contracts as debt.
It's extremely difficult being once or twice removed from the U S. Army of many of these cases are working through the <unk>.
To get a really clear picture of exactly what contract as of current contracted people happen to be talking about on a given day.
We've seen even in the you know the.
The batteries for soldiers that were directly involved with over the course of an idea of Q there could be multiple direct.
<unk>.
By Us and other delivery awards and and you know.
Subsequent IDI cues that are sort of nested within the time period, you would think debt.
Other idea of Q was in play and I would imagine that the.
The radios are or are not too much different it may be even more complicated so.
It's really.
I've got to speculate as to.
What is the current contract Thats being led and who's getting what piece and then how do we extrapolate the rps, but we do try to do is we try to stay extremely close with our customers. We try to support them in any way, we possibly can we violently protected there.
They're confidential information.
And make sure that we're the best supplier to these Oems and that we put them in the best position of wind whatever product, we serve but but I think it would be almost impossible to try to talk about what percentage of the overall cost of product represents and I hope you would understand that Thats I think its a fair way.
The.
Yeah Yeah.
I gotcha, but certainly.
Whatever level of business, we've been doing with both of them up till now.
Seems like it should increase everything else I'm, not asking you to say, yes, or no but to comment on it but you know based on.
The Harris conference calls.
To look at day day completed testing and are going into full rate production.
The evidence of that $3.3 billion new contract.
It seems like both companies should be moving into full production and that should bode well for us because we are designed in so if theyre going to increase their shipments to the government.
Government presumably.
There's going to be more batteries and more amplifiers for us.
And let me just ask the last question there.
So Phil you mentioned and we talked about at the you talked about it a couple of times in your script.
About the final shipments in the June quarter of last year of 2020.
The sale of amplifiers to tallis on the asleep awarded contract I think you said, Oh October 2018, or something like that so it's been a long time October 8.
<unk> to now so it's been almost 3 years.
With that of out any follow.
Borders.
So I am guessing there had been as you just mentioned Phil there would be no shipping from inventory, but as they start to go into.
Production along with Harris.
Is there an expectation that youre going to be of having some new amplifier orders coming over the next 6 to 12 months.
Oh, yes.
Yes.
The only answer I can give you of Gary that's that's that's my personal expectation and it may seem like a long time between the time the order was placed and the development period and the testing period. The big variable here is with the timing of the field tests it seemed like.
It took an eternity, but 4 of radio the most complicated radio of military radio in existence to date.
The tests are very very expensive and they were complicated bye bye.
By all the factors that we've talked about in the past the resulting from Covid so of.
It may seem like an extended period of time, but true.
Such a complex.
<unk> I.
I guess not too unexpected from our part with our experience.
Okay, Yeah, I just wanted to make sure that because we haven't gotten any follow ons that.
They didn't replace our amplifiers with someone else's are.
We lost some of the customer so it's just the.
They worked down inventory were already designed in and we'd be getting orders as that moves into full.
Full production from L Rip production.
And then we had that evidence by the Harris conference call by the Harrison 1 of 3 billion Award.
And then I think some preliminary.
Chris came out for the next U S Defense Department budget.
Which show shipments up 50% or more.
On radios.
So.
The answer is we will know when the order is issued when the next order is issued debt.
Really I could be optimistic I can be pessimistic, but until that orders.
They're nice.
We're fighting as hard as we possibly can to.
To be in the as competitive position as we possibly can be and that's how we play.
Yes, understood moving onto the conformal battery the the wearable.
Mike you mentioned in the script.
As.
Early 'twenty 2 you could be.
I have finished testing.
That seems pretty fast I mean, when we look at the testing for the $80 million I'd IQ. The $50.53 $9.50, 790 day, and then you know as.
We just discussed the testing.
On the radios.
Yes.
Understandably the radios are many factors more complex.
Ben body.
Wearable body batteries.
Is that the reason why.
And it could be done. So so quickly you mentioned early 'twenty, 2 and maybe starting to get some production orders.
For the balance of 'twenty 2.
Yeah, I think I think you've heard it correctly in the prepared remarks, you talked about it being a very ambitious schedule.
That's 1 of the reasons why we've elevated our investment in Capex.
The resources to try to position ourselves as best as possible.
None of those development cycles.
Most of that testing cycles in the other products that you've heard about it in multiple earnings calls so yes.
Yes, it's a fast schedule, we're confident about it we have.
It's not our first rodeo, we've done similar type batteries.
The sort of prototypes of the type of battery, we're talking about here.
But we know how rigorous the testing can be demanding the end user customer can be.
And so we know it's an ambitious schedule so.
<unk>.
Pride ourselves and trying to.
Maximize the.
The top of the bottom line every single quarter year over year, and even quarter to quarter, and that's where we made a big deal about the additional investment that.
Debt, we took this quarter to make sure that we're positioned as fast as part.
The meet the requirements of the customer in that zone.
Pretty quick.
Okay. So when I look forward to the next 3 years of theirs.
And going forward from here sequentially.
If oil stays bond with an economic recovery in Sweden seems.
The position to continue to do well.
The medical you had a tough year over year comparison with the first COVID-19 quarter of last year, but medical has been a perennial gaynor and the.
The demographics and the CAGR on medical team.
Pretty strong in elective procedures coming back is that as the nation's take hold.
And then I look at the.
Like the sort of southern.
Our revenue streams, new revenue streams, the $8 million to $10 million you mentioned in.
The 3 volt Iot and remote sensors the.
Of the age of $10 million commercial opportunity in comm systems.
The $8 million to $10 million on the $80 million <unk> per 50, 390% of 50.790 <unk>.
The 8 to 10.
Newson and smart <unk> batteries, the ER product line rollout.
The radios, we just talked about manpack leader handheld Viper with Talis and Harris going into production with gotten some evidence on the $3.3 billion dollar contract that Harris, just 1 plus 1 preliminary.
The budget estimates.
Millions on that so I don't know, if thats up $8 million to $10 million like everything else or that's a factor of higher.
Because it's such a big contract.
And then finally conformal battery.
Which could scale up to 50 million of year.
If you look at the <unk>.
Total.
The <unk> of all the options.
500 million over 10 years or if you look at the first 3 years.
As you just mentioned the government's very ambitious to get this controlling the battery in the 168 million of over 3 years.
Yeah, it was over $50 million of year.
So when I add it all up I come to conservatively.
It'll actually you know $50 million to $100 million in annual.
The incremental potential businesses, they're all IDI cues and you don't know until you know.
But even if that plays out over the next 1.2 of 3 years.
And you do spike to $52 million in.
Incremental revenue.
<unk>.
The $20 million $50 million 80, or 30, 60, 90 or whatever it is when I do my math.
Even discounting your gross margin to the low twenty's from where it's historically been and I know your target is 30%.
I come to again I don't know if its a year from now of 3 years from now, but I come to a buck.
Where the rock 50 in earnings per share of.
Totally shielded by the NOL carry forwards.
Now when we look at the last 3 years. When you guys. The last time you guys put 3 years of 4 years of good earnings together.
So if you go back the last 3 or 4 years, you've been flat between 35% of 40, but prior.
2 of them that you had 3 or 4 years. When you went from like breakeven to 7 stands to 18 to 27 to 39 or something like that.
When you put together 4 years in a row of increasing revenue and increasing earnings the <unk>.
Stock peaked at about 11 of half the 40, So you had north.
Of the 25 P C.
So if I'm right.
We don't know, if it's a year or 2 or 3 or 4.
Can you do about to about 50 I come up with.
The <unk>. The P. You have of 25% to $40 stock price, so with that potential possibility and again I'm not asking you to comment on that or etsy.
Cetera.
<unk>.
Mike My question is as follows.
To do everything you're.
And you're talking about despite having 50 million of working capital and $15 million in cash no debt and 50 to 100 million in the line of credit.
To do all of that.
To fund all of those new lines of business and the potential to go from a $100 million business 200 million dollar business over the next 2 or 3 or 4 of 5 years.
You're going to need a lot of working capital and a lot of liquidity.
So I guess, what I'm, saying is maybe.
Instead of since the potential associates.
To kick in to get of $25 to $40 stock price on our plus and earnings.
Maybe.
It's worth considering when the stock if and when the stock gets to the teens instead of the.
Using your first opportunity to do a secondary of an equity deal.
In terms of dilution for the current.
The patient long term shareholders, maybe you do of convertible debt deal.
And then as you know.
All of these projects go to full production.
And what I, just said starts to transpire and the stock does go into the Twenty's then maybe you do.
Our secondary of just stock.
Yeah.
Net working capital and to pay off the the convertible debt.
Is that something you would consider.
Well I'll just say this is Gary we consider.
All of the different options that.
You mentioned some that you haven't mentioned and I think an overriding factor you mentioned the.
Dilution.
38% of 38, 5% of Ultra light is owned by insiders. So.
We're all aligned management is 100% aligned with the shareholders as as as we should be of course as we should be so it puts us in a position where we look at all of the different.
Current opportunities, including most importantly, cash generated from our own operations cash generated from the efforts the <unk>.
Daily efforts that we're putting into reducing inventory and then from there we look outwards and we have a great relationship with our primary lender great opportunity.
Going forward. So everything is his game and <unk>.
Including some of the things that you mentioned, but I will say that diluting the shareholders unless it's for incredibly accretive reasons wouldn't necessarily be at the very top of the list.
Leave it at that.
<unk>, Okay, that's fair so I.
Yes.
My original.
Scenarios was kind of.
If we could get to $130.140 million of business would have the stock in the teens and then maybe.
You do of secondary.
But in light of the conformed ward, which a lot of us weren't aware.
There of.
And the size of all of these transformational opportunities.
It seems like the potential is much more significant than any of us thought before.
And again granted it has to come to pass you have to get the orders the IDI cues et cetera, but that's pretty true for every other public company of non public company they have to get the orders map execute.
So.
But I guess in light of the recent developments in the 100 million all of them.
The $50 million to $100 million annual.
The incremental revenue potential which would double the size of the company.
It seems like my old target of 15 is low and if it's 25 to 40.
The thing about again, whether it's 2.3 or 4 years.
It seems like you might be able to use some additional tools instead of just the regular equity deal.
And that and that gets me to my second question.
Now the you know you're through the difficult annual year over year earnings comparisons.
With those final shipments in June in the June 2020 quarter.
From from the.
Amplifiers.
It seems like we are generally speaking on the with all of these revenue lines coming to fruition etcetera and the.
The year over year comparisons getting easier we're on the verge of maybe multiple.
The quarters of positive.
Sales and earnings comparisons.
And with all of that potential we just discussed.
It seems like now would be the time.
2 on the IR front to maybe do something that you haven't done before.
It would be the start attending conferences.
Is there is probably 25 small cap brokers out there that do the conferences, you know about ROA and Sidoti and B Riley.
Eiffel.
The etcetera etcetera.
And most of them the done virtual so it's not a big deal for you guys to sit down and I'll read the conference room and do a zoom.
Confidence it seems to make sense to plant the seeds now before it.
Self evident and in the face of investors.
That way you have the.
15, and you've done 312.13 quarters before so as these new revenue streams come on and you do 15.2025 quarters.
Youre already planted a lot of seeds with investors.
Again.
It's been 10 years and you're the only gotten 1 analyst report.
And you haven't done conferences so.
On the verge of positive earnings comparisons on the verge of some explosive revenue opportunities.
It seems now would be the time to.
I meant the seeds.
And then as you start delivering these double digit quarters and people see of 15 cents quarter, they see of 'twenty quarter, They see of 25 cent quarter.
You know.
Investors will be able to take advantage of that because it doesn't make sense to me from the start to be at a box which it.
The go platform the.
Before you got the Conformal award.
And.
You know you have 2 or 3 times the earnings potential debt.
You did the last year and 40 cents in the stock had gotten to 11, so to me the stocks seem to excessively cheap the sub.
And of half dollar book value of cash no debt.
The enterprise values less than 1 times.
And you have this.
Of that calculus of potential revenue and earnings.
The front of you so.
Would you consider doing the some of the you know enhanced IR.
To plant the seeds from.
For the company.
Gary. Thank you. Thank you for.
Of your thoughts on net okay and last question.
Since your you.
Full with the 7.
Revenue stream of opportunities.
Is the correct that you're not really focusing on M&A now and you're going to use your working capital cash of line of credit to fund all of these developments.
Or do you feel you can do both at the same time.
Gary It's not correct that we haven't been focused on M&A at any given time.
We have both internal and external resources talking to multiple companies.
It's just we haven't talked about it we havent announced anything and when something of that developed into something that is.
Something we'd want to disclose we will definitely disclose it.
So it's not off the table, even though you really flow with opportunity here.
Oh no.
Alright, guys, Hey, thanks, very much and congratulations.
Thanks, Greg.
Yeah.
Once again, ladies and gentlemen, please press star 1 to ask the question.
[laughter].
It appears there are no for the question at this time I'll like to turn the conference back to Mr. Popeil, It for any additional or closing remarks.
Alright, Thank you very much.
Much again for joining us from the second quarter of 2021 earnings call.
We look forward to sharing with you on our quarterly progress calls in the future of the status of some of the things we talked about today I'd also like to note as Phil mentioned, we updated our investor presentation of the website. So please check it out and everybody have a great day, thanks very much for participating.
Yeah.
That concludes today's conference. Thank you I mean, 1 for your participation.
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