Q4 2021 Ultralife Corp Earnings Call
Good day and welcome to this <unk> Corporation fourth quarter 2020 earnings release Conference call.
At this time for opening remarks, and introductions I'd like to turn the call over to MS. Jody Bar for me. Please go ahead.
Thank you Diana and good morning, everyone and thank you for joining US. This morning for Ultra Light Corporation earnings Conference call for the fourth quarter of fiscal 2021.
With us on today's call are Mike public Ultra <unk>, President and CEO , and Phil Fain Ultra Chief Financial Officer.
Our earnings press release was issued earlier this morning.
Not yet received a copy I invite visit the company's website www Ultra light core dot com, where 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 contains forward looking statements based on current expectations.
Results could differ materially.
<unk> as a result of various risks and uncertainties the potential risks and uncertainties could cause actual results to differ materially include the impact of COVID-19.
Reductions in revenues from key customers acceptance of new products on a global basis and uncertain global economic conditions. The company cautions investors not to place undue reliance on these.
Statements, which reflect the Companys analysis only as of today's date.
The company undertakes no obligation to publicly update forward looking statements to reflect subsequent events or circumstances.
Further information on these factors and other factors that could affect our financial results are included in <unk> filings with the Securities and Exchange Commission, including the latest annual report on Form 10-K .
Additionally, on today's call management will refer to certain non-GAAP financial measures that management considers to be useful metrics differ from GAAP.
non-GAAP measures should be considered supplemental to corresponding GAAP figures.
With that I would now like to turn the call over to Mike Good morning, Mike.
Good morning, Jody and thank you everyone for joining the call.
Today I'll start by making some brief overall comments about our Q4 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 revenue initiatives and the focus areas for 2022 before opening it up for questions.
For the fourth quarter of 2021.
Current COVID-19 supply chain component lead times and inflation challenges continued to weigh heavily on both revenue and earnings with revenue impacted by as much as $5 $4 million earnings by approximately $1 $8 million and EPS by <unk> <unk>.
Driven primarily by the supply chain impact and some nonrecurring military sales revenues in our core end markets, our government defense and medical were both down year over year.
We did once again see improvement in our oil and gas and China revenues up, 72% and 42% respectively year over year.
Which drove our fourth quarter commercial revenues up 10%.
Nevertheless, total.
Company revenues for Q4 were down almost $5 million year over year, while on.
Operating profit loss of $1 $2 million was reported.
Reflecting the supply chain impact.
Our ongoing investing in future revenue opportunities.
And one time acquisition costs.
Operationally.
Key revenue generating event highlights for the quarter.
Included the closing of a $23 $5 million XL battery acquisition.
The $4 2 million dollar leader radio DAA follow on contract.
The next $9 9 million 50 390 <unk>.
And progress on several of our new product development projects.
Despite the COVID-19 supply chain constraints on revenue.
Your intake levels remained healthy.
And the Q4 2021, ending core business backlog.
Not including the acquisition or IQ awards was over $53 million.
$11 million.
We're approximately 27% from Q3 2021.
And up $14 million or 35% year over year.
To address the supply chain lead time logistics and cost challenges, we continue to work very closely with our suppliers and customers and in many cases are raising prices.
I'd like to thank each and every one of our employees channel partners and customers for their tremendous effort and cooperation and fulfillment execution.
Given the present supply chain situation.
In a few minutes I will give you further updates on our revenue initiatives, but first I'd like to ask <unk> CFO , Phil Fain to take you through additional details of our fourth quarter 2021 financial performance.
Bill.
Thank you Mike and good morning, everyone earlier. This morning, we released our fourth quarter results for the quarter ended December 31 2021.
We also updated our investor presentation, which you can find in the Investor Relations section of our website.
And plan on filing our Form 10-K on or before our required deadline of March 16th.
Upon completion of certain reporting requirements relating to our December 13th acquisition of Excel.
Before starting my review.
Want to point out to everyone that our fourth quarter includes <unk> operating results for the period December 13th through December 31.
Along with the purchase accounting adjustments and direct costs related to the acquisition.
As I go through my prepared remarks, I will point out the impact of the acquisition.
Various line items and earnings per share.
For reference purposes, <unk> revenues on a trailing 12 month basis were approximately $21 million and we expect to sell to be accretive.
Inclusive of all acquisition and financing costs within the first 12 months.
Now I will take you through our fourth quarter results.
Consolidated revenues for the 2021 fourth quarter totaled $23 8 million compared to 29 million reported for the fourth quarter of 2020.
A decrease of 18%.
Commercial sales increased nine 9%, reflecting a rebound in oil and gas and some international industrial markets.
And the initial sales contribution of excel par.
Partially offset by a reduction in medical sales from the initial surge of batteries for ventilators respirators and infusion pumps in response to COVID-19 last year.
<unk> defense sales declined 55% relative to the shipment of an order for $53 90 batteries in last year's period.
And lower shipments for our communication systems business.
As Mike mentioned for the 2021 fourth quarter increased lead times on components from suppliers and other COVID-19 related logistics matters significantly impacted both our internal and our customers' manufacturing schedules, resulting in delays in our shipments.
Future periods.
Of the $5 4 million adverse revenue impact $3 4 million was related to our government defense business with the remaining two point million related to our commercial business primarily in the medical sector.
On a segment basis battery and energy products accounted for $3 5 million of the $5 4 million revenue impact in.
In communication systems for $1 9 million.
Revenues from our battery and energy products segment were $22 1 million compared to $25 3 million last year, a decrease of 12, 7%.
Attributable to a $2 9 million or 31% decrease in medical sales and a $4 7 million or 48, 9% decrease in government defense.
Partially offset by a $1 6 million or <unk>, 71.5% increase in oil and gas market sales.
<unk> sales of $1 1 million.
And up <unk> 8 million or 41, 5% increase in sales from our China operations Pri.
Primarily driven by our new thin cell batteries the.
The decline in government defense sales resulted from a large shipment in last year's fourth quarter of $53 90 battery order placed in December 2019 by the U S Department of defense.
And delayed shipments to a large global defense prime attributable to supply chain issues.
The backlog for our battery and energy products business of $55 4 million the highest in our history increased by $20 7 million or 60% over year end 2020.
The sales split between commercial and government defense for our battery business was $78 22.
Impaired to $62 38 for the 2024th quarter and the domestic to international split was $50 50, compared to 50 446 last year.
Accentuating, both the delays in U S government defense sales and the continued success of our global revenue diversification strategy.
Revenues from our communications systems segment, or $1 7 million compared to $3 7 million last year.
Decrease of 54, 6%.
Selecting shipments shipments delayed to future periods due to increased lead times on components from suppliers and other COVID-19 related logistics matters.
Backlog for our communication systems business of 8.1 million increased $3 3 million or 71% over year end 2020.
On a consolidated basis, the commercial to government defense sales split was 70, 327% versus $54 46 for the year earlier quarter.
Our consolidated gross profit was $5 3 million compared to $7 4 million for the 2020 period.
As a percentage of total revenues consolidated gross margin was 22, 3% versus 25, 4% for last year's fourth quarter.
Gross profit for our battery and energy products business was $4 8 million compared to $6 4 million last year.
Gross margin was 21, 8% a decrease of 340 basis points from 25, 2% reported last year <unk>.
Primarily reflecting lower factory volume, causing a 200 basis point decrease due to lower overhead absorption as compared to last year material usage and new product transitions, resulting in a 100 basis point decline in.
55 basis points of purchase accounting adjustments relating to the acquisition of excel.
In accordance with generally accepted accounting principles, we wrote up excels, beginning inventory to fair market value, thereby eliminating a significant portion of the gross profit from the sale of this inventory since December 13th.
For our communication systems segment gross profit was <unk> 5 million compared to 1.1 million for the year earlier period.
Gross margin of 28, 1% compared to 26, 3% last year, reflecting favorable sales mix, partially offset by lower factory throughput in the 2021 period.
Operating expenses were $6 5 million compared to $6 1 million last year.
An increase of <unk> 4 million or six 2%.
The increase was fully attributable to excel to operating expenses of <unk> 6 million, including <unk> 4 million of one time direct acquisition costs, reflecting customary legal audit and due diligence expenses excluding.
Excluding XL operating expenses decreased <unk> 2 million or two 9% due primarily to lower corporate expenses, partially offset by our investments in engineering resources dedicated to the conformal wearable battery <unk> contract announced on May 17th.
As a percentage of revenues operating expenses were 27, 4% compared to 21, 2% for last year's fourth quarter.
Operating loss for the fourth quarter of 2021 inclusive of <unk> 5 million of purchase accounting adjustments and direct acquisition costs was $1 2 million compared to income of $1 2 million for the 2020 quarter.
Reflecting lower sales and gross margins, resulting from supply chain delays.
And our continued investments in new product development.
We estimate that the negative impact of the supply chain delays in operating income was $1 8 million for the 2021 fourth quarter split evenly between the businesses.
Our tax benefit for the fourth quarter was <unk> 2 million compared to a tax provision of <unk> 7 million for the 2020 quarter computed on a GAAP basis.
Including the nonrecurring acquisition adjustments and expenses amounting to <unk> 5 million or <unk> <unk> per share net loss was $1 1 million or <unk> <unk> per share on a diluted basis for the 2021 fourth quarter.
This compares to net income of $2 1 million or <unk> 13 per share on a diluted basis for the 2020 quarter.
The 2024th quarter included an award of approximately $1 6 million net of fees. Upon U S District Court approval and order authorizing the distribution of funds to claimants and a lithium ion battery antitrust settlement.
Ultralight maintained its solid balance sheet in the fourth quarter cash on hand decreased year over year from $10 7 million to $8 4 million, reflecting the cash contribution towards our acquisition of excel and the payoff of the remaining debt from our acquisition of suite.
We ended the 2021 fourth quarter with working capital of $47 4 million and a current ratio of three six 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.
We'll continue while continuing to expedite our organic growth through accretive M&A.
Going forward with our growing backlog ample liquidity diversified end markets and growth initiatives.
All highlighted by our acquisition of Excel.
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.
For 2022, we're continuing to focus on driving revenue growth by market and sales reach expansion primarily through diversification.
New product development and strategic Capex for competitive advantage and.
And a disciplined approach to accretive acquisitions.
For the battery energy products business the strategy for market and sales reach expansion is about diversifying more into the global commercial markets and the international government defense markets to lessen any dependence on the U S government defense market.
To that end, we are very excited to have completed the acquisition of the Excel battery group based in Canada and with operations also in the U S for.
For 'twenty, three and a half million dollars on December 13th.
This acquisition supports our diversification into commercial markets.
While providing further scale of our battery energy products business.
Realizing cost synergies and.
And driving the proven operating leverage of our business model.
It expands our participation.
In a variety of industrial markets, including downhole drilling OEM industrial and medical devices.
And further exposes us to new currently Unserved OEM device verticals, such as automated meter reading ruggedized computers and mining in.
And other mission critical applications.
Which demand Uncompromised safety service reliability and quality.
As a profitable and.
Well run company <unk>.
<unk> is a leading independent designer and manufacturer of high performance Smart battery systems battery packs and monitoring systems to customer specifications.
Excel possessing an organizational culture and business model similar to our own.
With experienced technical and sales resources, which we plan to utilize and progressing progressing our global new product and selling initiatives.
The initial 100 day functional integration plans are in full execution mode and the acquisition transaction is expected to be accretive on an EPS basis within 12 months.
Yeah.
For Q4 of 2021.
Overall global Beanie medical revenue represented 30% of total battery and energy product sales.
Demand from current customers was for applications, such as ventilators respirators and infusion pumps digital X Ray.
Surgical robots and vital signs monitoring devices.
We also received over $8 $8 million in delivery orders from existing medical customer blanket <unk> multiyear agreements.
Q4 oil and gas and subsea electrification commercial revenue was approximately 17% of total <unk> sales.
We continue to see improvement in our core oil and gas business.
Drove up total Q4 oil and gas revenues at a strong double digit rate year over year in.
And capped off a total year 2020 revenue increase of 27%.
As contemplated as part of the acquisition a few years ago.
Our Sui operations continued to diversify their capabilities.
Saudi supporting our engineering efforts for overall company product development in both medical and government defense end markets.
We are also truly excited about our further additional sales and operating leverage in the oil and gas space as a result of our newest acquisition of Excel battery.
On the International Government Defense, Brian in Q4, we received an order for our lithium manganese dioxide 50, 390, <unk> 50, 790 primary batteries from an international customer.
It will ship within the next 12 months and with additional follow on awards possible.
<unk> Q4 U S government defense business represented 22% of total <unk>, new product sales, consisting primarily of radio batteries and Chargers to OEM primes.
In Q4, we were also very pleased to announce a $9 $9 million follow on be a $53 90 primary battery IQ Award from DLA.
In the meantime, we do have a separate small delivery order to complete under a prior 50, 50, 390, <unk> IQ contract, which is expected to ship in the first half of this year.
Regarding the wearable conformal battery IQ contract, which we announced last May we continued product development and component testing towards the first article testing schedule expected to begin in the latter part of 2022, demonstrating full compliance with the contractual product specifications and program requirements.
As a reminder, regarding these two <unk> contracts actual delivery orders, including quantities and timing.
At the discretion of the Dod.
New product development remains a core element of our organic growth strategy and during the fourth quarter. We continued to advance several of our multi year develop new products, including but not limited to.
Our next generation medical cart battery.
High capacity Smart you won battery.
<unk> 50, 790, and XR 1238, <unk> blend primary batteries.
OEM public safety radio batteries and.
And next generation Ruggedized modular large format energy storage batteries.
The next generation of medical Cart battery is now undergoing field trials at customer sites.
And we also expect to showcase it at upcoming healthcare information and management system Society Trade show in Orlando, Florida. This March.
This product was conceived designed sourced and manufactured over multiple ultra light locations, leveraging our worldwide technical talent and delivering a product suitable for our global customer base.
Initial customer response has been very positive.
New product development and multi generational product planning.
<unk> to keep us current with market needs and gives us the opportunity to remain close with and price value to our key customers.
In addition to the investment in new product development of multi generational product planning. We're also continuing to deploy strategic capex investments in our facilities to strengthen our competitive differentiation.
The new manufacturing line at our Newark, New York facility for a new lithium manganese dioxide primary three volt cell as startup of billing initial customer orders.
Customer feedback is favorable on our products performance safety and contribution to the OEM devices competitiveness.
Performance <unk> has been demonstrated in our high rate or power capability, which is particularly useful and illumination devices and.
And medical devices with short high pulse rate applications.
We also continue to undergo customer evaluation.
A similar form factor three primary cell.
What they see FX blended battery chemistry.
Which will offer significant longer runtime affording enhance system reliability to address growing applications in the Iot remote sensor and medical markets.
And our China facility.
Where we are now in the second phase of our project to upgrade our final chloride primary E ourselves with.
With customer feedback on the improvements made so far contributed to be continue to be positive.
And backed up by initial orders.
For this product.
Which can be required to operate anywhere from five to 10 to 20 years.
<unk> have long testing and qualification periods and when.
Product performance has validated the.
It's a sticky customer relationships.
In addition.
This several stage projects to make product and process improvements will result in a multiple increase of our total available market.
With newly identified vinyl chloride <unk> commercial and industrial applications.
In Q4, we began seeing the first production results from this qualification process and we expect to see continued revenue acceleration in 2022 and 2023.
Our global medical and other industrial customers continue to tap into our China operations for supply of cells and battery pack solutions, which is growing our value proposition in.
In Q4, our total China operations revenue was up 42% year over year and indicate a growing demand for our China capabilities.
Our goal is to produce the highest value proposition best quality and safest products.
In close collaboration with our end market and OEM customers.
Whichever one or more of our global locations best serve their supply chain.
Looking at our communication systems business in Q4, new product development revenue from products less than or equal to three years old represented approximately 59% of communication systems sales.
For the U S Army handheld manpack small form fit and leader radio programs.
We are working the supply chain in preparation for manufacturing delivery later in 2020 to the previously announced $4 2 million vehicle amplifier adapters or.
As an ongoing DAA provider.
The various radio programs, we believe we are well positioned for future awards.
Support to military radios is at the core of the communication system products.
And our new initiatives currently underway with a tier one defense partner to develop a unique power solution for radio integration into aircraft.
Early development units were well received in the next round of advanced integration is ongoing for testing throughout 2022 with procurement potential production units in 2023 and 2024.
Supply chain issues continue to impact the communication systems business we.
We entered 2022 with a backlog of approximately $8 million supporting orders for 21 amplifier upgrades radio power supplies speaker kits and non standard vehicle communication kits.
However, electric component availability and extended material lead times have negatively impacted manufacturing timelines and revenue forecasting.
For components that are available.
Livery challenges are often compounded with increased transportation and logistics costs.
Our team continues to work closely with customers and suppliers to mitigate the supply chain and manufacturing impact as much as possible.
Regarding our communication systems teams push into commercial markets. We delivered initial low rate production units of our mobile data card in Q4.
These units enable analysis of autonomous vehicle data.
During testing and manufacturing of the vehicles and are currently undergoing test and evaluation with customer initial feedback provided an adjustments being made.
Waiting on final reports.
This product is the first pure commercial nongovernment defense product offering for communication systems.
And a significant milestone for the team.
Our second commercial product under development is a virtualized radio access network and closure supporting <unk> network deployments worldwide, which was delayed due to material acquisition issues. It is now ready to ship to the customer for initial testing evaluation with production volume orders expected to begin in 2020.
Three.
The diversification into commercial products.
Combined with our continued participation in ongoing global military radio programs.
Supports our long term growth potential.
Of the communication systems business.
In closing for the fourth quarter of 2021.
We were very pleased to.
To close the <unk> battery acquisition.
To receive the next leader radio DAA follow on contract.
As well as the next 50 390 <unk> Award.
While continue to make key progress on.
Several of our new product development projects.
Although we begin 2022.
Still under the Covid supply chain and inflation cloud.
We believe we are well positioned for financial performance improvement as the year progresses.
As a result of.
The immediate revenue lift from the acquisition.
The strong organic revenue carryover backlog.
Our exposure to the oil and gas recovery.
Several of <unk>.
<unk> awards in various stages of maturity, including the $53 $90 50, 790, and conformal wearable batteries.
Initial revenue realization from some of our new product development projects.
Such as from the new ER and see ourselves.
The new medical cart batteries.
And several new communication systems integrated computing, <unk> and AI commercial solutions.
During 2022, we remain aggressively focused on the items within our control.
Namely completing our existing new product development projects.
Integrating our latest acquisition.
Continuing to bolster our teams in.
And looking for additional transformational growth opportunities.
Organic or through acquisition.
That deliberate new meaningful sustainable annual revenue streams in attractive growth markets from new competitively differentiated products and solutions.
The major industries, we serve military defense energy and medical.
Provide us the fertile base durability and resiliency to ride out the current economic challenges.
As we progress through 2022, we will continue to optimize our financial performance.
Targeting total year profitability.
Cash flow from operations and maintaining our strong balance sheet.
Supporting transformational products and investments.
Our goal in 2022.
Is to return to a next year.
Of profitable growth.
Operator. This concludes my prepared remarks and be happy to open the call for questions.
Okay.
Thank you Amit.
Good question, please signal processing THAAD one.
Okay.
You're using a speaker.
Sure the immune function.
To allow your signal for each other.
Once again press star one to ask a question.
And we will take off.
From Sullivan with.
The benchmark.
Please.
Hey, good morning.
Good morning, Josh.
Just as far as the supply chain issues can you just expand on some of the specifics how much of the headwind is lack of receiving needed components to make your products versus customers, who will be taking the product at this point.
Yes, I think we will be divided into two pieces and the piece, we can control I'll call the much easier piece.
Our supply chain so in our case.
We purchased sells on a forward basis, you'll see our inventory increased we probably spent $3 million.
Just to pay in advance.
The opportunity to supply needed cells to fill the back orders.
And.
It wasn't easy.
Being in a position to.
To obtain those cells and it hurts even more when you have to pay in advance, but that's reality. So the piece that we can control our supply chain for the most part is something that I think our folks have done a very good job at.
The parts, we can't control when certain individuals in our supply chain. Despite all the precautions we take.
Come down with Covid or are exposed to COVID-19 and it puts align.
On the lay them for a week or possibly longer that's certainly hurts.
One of the tougher parts Josh is the part we can't control and Thats the customer supply chain because the customer in a lot of cases is of course is telling us when they want to accept the goods now they want our components, but our customers are.
Our our OEM device companies.
With a lot of different components coming in ours being just one of many so that's the really the part that we can't control. So I would say if I have to split it up 50% of it is what we can control 50% of it is what we can't control the part that we can't control we see.
The big increase in backlog and we have not had any cancellations of any orders whatsoever, and it's just forcing.
What used to be weekly now daily and sometimes hourly communications with our supply chain.
And our customers.
Got it thanks for that and then on the defense business what are your thoughts on the continuing resolution if we get a budget spring summer ahead of the midterm elections, what orders look like versus maybe a worse or worst case scenario for a full year CR.
Yeah, we're really found the lead of our major OEM primes.
Theres been a number of recent announcements and activities that would suggest that we could be in a favorable position.
In terms of some of the transactions that would come straight from DLA.
We have much less visibility to those so I would say, we're cautiously optimistic but we're.
We're not counting anything for sure and in the back log comments that we provided.
We certainly didn't have anything included in there and our IDI cues, we don't really count anything in our backlog unless we have a firm delivery order for it so I would say, we're cautiously optimistic but.
It's been a pretty up and down year over the last couple of years and so we're not trying to get ahead of ourselves in terms of expectations.
Got it got it.
And then on the <unk> acquisition.
Where do you see the biggest opportunity was it was it the new products in oil and gas was at synergies on capacity or something else. Maybe if you could just walk through some of the thought process there.
When we look at any acquisition, Josh and we go through a lot of.
Dozens and dozens of different opportunities.
The things that we.
Consistently look for.
As we look for acquisitions, where you know the day after we buy them.
It's not their high watermark for revenue, we look for businesses that in their own right are growing.
And we saw that with certainly with EXL.
The second thing we look for as we look for.
Clear visibility to a return to an operating margin rate that was in <unk>.
Equal to or better than the operating margin rate that we had as a company prior to the acquisition, meaning that there had to be Henry visibility to profitability is not just some future expectation that's not we're not able to connect the dots on yet.
Thirdly, we look for accretion.
On an EPS basis within 12 months and in this case. This was an ongoing viable businesses, we understood. The culture, we understood the markets, we understood the business model for and we could see a clear path to accretion within 12 months and then of course.
A reasonable retaining retained a return on investment so.
We go through lots of different deals.
And we're constantly having new deals brought to us.
And if we put it through those four criteria and essentially XL checked every single box and then.
That's just really from a financial perspective, and making sure. It makes sense on an economic basis, but but with the other thing that really excites us about it is that the people that we got we've talked about it on other acquisitions in the past.
We get a great bunch of people in terms of their technical capability is to apply our products to new markets.
Get the opportunity to sell some of our products that they may not have had access to before we get to sell some of their products.
But fundamentally it's an ongoing operation that's profitable that will continue to grow organically. After the acquisition and those are some of the things that we saw in <unk> just wanted to do the acquisition.
Got it got it.
And then just lastly on the communications promotional for US how should we think of investment versus timing of returns versus your historical business. How are you going to balance those two.
That's a good question.
They both involve.
Sense of development.
And.
Customer.
<unk> and acceptance testing.
I think that the way we're looking at it is that they they accentuate our capability to provide.
Highly technical integrated solutions, and sort of a battle hardened and closure and capability.
It's very consistent with our military defense, but isn't so subject to the ups and downs and cyclicality of the military defense business. So I think it's a good.
Complementary fit to our overall capability.
Is it good diversity.
Vacation from our government you know from our government defense business.
And we're cautiously optimistic about it they do have some long cycle times.
But and we've been commenting and now I know for several quarters.
<unk> going to see some low rate production shipments.
So we're quite optimistic about it but like anything else we've got to execute.
We got to deliver and get the results.
Great. Thank you for the time.
Thanks, Josh.
As a reminder to ask a question press star one.
It appears we have no further questions at this time, so I would like to turn the conference back to our speakers for any additional or closing remarks.
Well, great well. Thank you once again for joining our fourth quarter 2021 earnings call. We look forward to sharing with you our quarterly progress on each quarter's conference call in the future.
As Phil mentioned, we also updated our investor presentation on the website. So please check it out and have a great day.
Ladies and gentlemen, this concludes today's call. Thank you for your participation you may now disconnect.
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Good day and welcome to this full suite of Life Corporation fourth quarter 2021 earnings release Conference call. At this time for opening remarks, and introductions I'd like to turn the call over to MS. Jody Bar from Ing. Please go ahead.
Thank you Diana and good morning, everyone and thank you for joining US. This morning for Ultra Life Corporation earnings Conference call for the fourth quarter of fiscal 2021.
With us on today's call are Mike public Ultra <unk>, President and CEO , and Phil Fain Ultra Chief Financial Officer.
The earnings press release was issued earlier this morning.
Not yet received a copy I invite visit the company's website www Ultra light core dot com, where 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 contains forward looking statements based on current expectations actual results could differ materially.
Projected as a result of various risks and uncertainties potential risks and uncertainties could cause actual results to differ materially include the impact of COVID-19.
The reductions in revenues from key customers acceptance of new products on a global basis and uncertain global economic conditions. The company cautions investors not to place undue reliance on these statements, which reflect the company's analysis only as of today's date.
Company undertakes no obligation to publicly update forward looking statements to reflect subsequent events or circumstances.
Information on these factors and other factors that could affect our financial results, including an ultra filings with the Securities and Exchange Commission, including the latest annual report on Form 10-K and.
In addition on today's call management will refer to certain non-GAAP financial measures that management considers to be useful metrics differ from GAAP.
These non-GAAP measures should be considered supplemental to corresponding GAAP figures.
With that I would now like to turn the call over to Mike Good morning, Mike.
Good morning, Jody and thank you everyone for joining the call today I will start by making some brief overall comments about our Q4 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 revenue initiatives and the focus areas for 2022 before opening it up for questions.
For the fourth quarter of 2021 current Covid supply chain component lead times and inflation challenges continued to weigh heavily on both revenue and earnings with revenue impacted by as much as $5 $4 million earnings by approximately $1 $8 million and EPS by <unk> <unk>.
Driven primarily by the supply chain impact and some nonrecurring military sales revenues in our core end markets, our government defense and medical were both down year over year.
We did once again see improvement in our oil and gas and China revenues up, 72% and 42% respectively year over year, which drove our fourth quarter commercial revenues up 10%.
Nevertheless, total company revenues for Q4 were down almost $5 million year over year, while on operating profit loss of $1 $2 million was reported reflecting.
Reflecting the supply chain impact.
Our ongoing investing in future revenue opportunities.
One time acquisition costs.
Operationally.
<unk> revenue generating event highlights for the quarter.
Included the closing of a $23 $5 million XL battery acquisition.
The $4 $2 million of leader radio DAA follow on contract.
The next $9 $9 million 590 <unk>.
And progress on several of our new product development projects.
Despite the COVID-19 supply chain constraints on revenue.
Order intake levels remained healthy.
And the Q4 2021, ending core business backlog, not including the acquisition or IQ Awards was over $53 million.
Up $11 million.
Or approximately 27% from Q3 2021.
And up $14 million or 35% year over year.
To address the supply chain lead time logistics and cost challenges, we continue to work very closely with our suppliers and customers and in many cases are raising prices.
I'd like to thank each and every one of our employees channel partners and customers for their tremendous effort and cooperation and fulfillment execution, given the present supply chain situation.
In a few minutes I will give you further updates on our revenue initiatives, but first I'd like to ask <unk> CFO , Phil Fain to take you through additional details of the fourth quarter 2021 financial performance.
Bill.
Thank you Mike and good morning, everyone earlier. This morning, we released our fourth quarter results for the quarter ended December 31 2021.
We also updated our investor presentation, which you can find in the Investor Relations section of our website.
And plan on filing our Form 10-K on or before our required deadline of March 16th.
Upon completion of certain reporting requirements relating to our December 13th acquisition of Excel.
Before starting my review.
Want to point out to everyone that our fourth quarter includes <unk> operating results for the period December 13th through December 31.
Along with the purchase accounting adjustments and direct costs related to the acquisition.
As I go through my prepared remarks, I will point out the impact of the acquisition on various line items and earnings per share.
For reference purposes, <unk> revenues on a trailing 12 month basis.
We're approximately $21 million and we expect <unk> to be accretive.
Inclusive of all acquisition and financing costs within the first 12 months.
Now I will take you through our fourth quarter results.
Consolidated revenues for the 2021 fourth quarter totaled $23 8 million compared to $29 million reported for the fourth quarter of 2020.
A decrease of 18%.
Commercial sales increased nine 9%, reflecting a rebound in oil and gas and some international industrial markets.
And the initial sales contribution of excel par.
Partially offset by a reduction in medical sales from the initial surge of batteries for ventilators respirators and infusion pumps in response to COVID-19 last year.
Government defense sales declined 55% relative to the shipment of an order for $53 90 batteries in last year's period and lower shipments for our communication systems business.
As Mike mentioned for the 2021 fourth quarter increased lead times on components from suppliers and other COVID-19 related logistics matters.
<unk> impacted both our internal and our customers' manufacturing schedules, resulting in delays in our shipments to future periods.
Of the $5 4 million adverse revenue impact $3 4 million was related to our government defense business with the remaining $2 million related to our commercial business primarily in the medical sector.
On a segment basis battery and energy products accounted for $3 $5 million of the $5 4 million revenue impact in.
In communication systems for $1 9 million.
Revenues from our battery and energy products segment were $22 1 million compared to $25 3 million last year, a decrease of 12, 7%.
Attributable to a $2 9 million or 31% decrease in medical sales and a $4 7 million or 48, 9% decrease in government defense.
Partially offset by a $1 6 million or <unk>, 71, and a 5% increase in oil and gas market sales.
<unk> sales of $1 1 million.
And up <unk> 8 million or 41, 5% increase in sales from our China operations.
Primarily driven by our new thin cell batteries the.
The decline in government defense sales resulted from a large shipment in last year's fourth quarter of $53 90 battery order placed in December 2019 by the US Department of defense and delayed shipments to a large global defense prime attributable to supply chain issues.
The backlog for our battery and energy products business of $55 4 million the highest in our history increased by $20 7 million or 60% over year end 2020.
The sales split between commercial and government defense for our battery business was $78 22.
Compared to $62 38 for the 2024th quarter and the domestic to international split was $50 50, compared to 50 446 last year.
Accentuating, both the delays in U S government defense sales and the continued success of our global revenue diversification strategy.
Revenues from our communication system segment, or $1 7 million compared to $3 7 million last year.
Decrease of 54, 6%, reflecting shipments shipments delayed to future periods due to increased lead times on components from suppliers and other COVID-19 related logistics matters.
Backlog for our communication systems business of 8.1 million increased $3 3 million or 71% over year end 2020.
On a consolidated basis, the commercial to government defense sales split was $73, 27% versus $54 46 for the year earlier quarter.
Our consolidated gross profit was $5 3 million compared to $7 4 million for the 2020 period.
As a percentage of total revenues consolidated gross margin was 22, 3% versus 25, 4% for last year's fourth quarter.
Gross profit for our battery and energy products business was $4 8 million compared to $6 4 million last year.
Gross margin was 21, 8% a decrease of 340 basis points from 25, 2% reported last year.
Primarily reflecting lower factory volume, causing a 200 basis point decrease due to lower overhead absorption as compared to last year material usage and new product transitions, resulting in a 100 basis point decline in.
And 55 basis points of purchase accounting adjustments relating to the acquisition of excel.
In accordance with generally accepted accounting principles, we wrote up excels, beginning inventory to fair market value, thereby eliminating a significant portion of the gross profit from the sale of this inventory since December 13th.
For our communication systems segment gross profit was <unk> 5 million compared to 1.1 million for the year earlier period.
Gross margin of 28, 1% compared to 26, 3% last year, reflecting favorable sales mix, partially offset by lower factory throughput in the 2021 period.
Operating expenses were $6 5 million compared to $6 1 million last year, an increase of <unk> 4 million or six 2%.
The increase was fully attributable to excel to operating expenses of <unk> 6 million, including <unk> 4 million of one time direct acquisition costs, reflecting customary legal audit and due diligence expenses excluding.
Excluding XL operating expenses decreased <unk> 2 million or two 9% due primarily to lower corporate expenses, partially offset by our investments in engineering resources dedicated to the conformal wearable battery ITI two contract announced on May 17th.
As a percentage of revenues operating expenses were 27, 4% compared to 21, 2% for last year's fourth quarter.
Operating loss for the fourth quarter of 2021 inclusive of <unk> 5 million of purchase accounting adjustments and direct acquisition costs was $1 2 million compared to income of $1 2 million for the 2020 quarter.
Reflecting lower sales and gross margins, resulting from supply chain delays.
And our continued investments in new product development.
We estimate that the negative impact of the supply chain delays in operating income was $1 8 million for the 2021 fourth quarter split evenly between the businesses.
Our tax benefit for the fourth quarter was <unk> 2 million compared to a tax provision of <unk> 7 million for the 2020 quarter computed on a GAAP basis.
Including the nonrecurring acquisition adjustments and expenses amounting to <unk> 5 million or <unk> <unk> per share net loss was $1 1 million or <unk> <unk> per share on a diluted basis for the 2021 fourth quarter.
This compares to net income of $2 1 million or <unk> 13 per share on a diluted basis for the 2020 quarter.
The 2024th quarter included an award of approximately $1 6 million net of fees. Upon U S District Court approval and order authorizing the distribution of funds to claimants and a lithium ion battery antitrust settlement.
Ultralight maintained its solid balance sheet in the fourth quarter cash on hand decreased year over year from $10 7 million to $8 4 million, reflecting the cash contribution towards our acquisition of excel and the payoff of the remaining debt from our acquisition of suite.
We ended the 2021 fourth quarter with working capital of $47 4 million and a current ratio of three six 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.
I'll continue while continuing to expedite our organic growth through accretive M&A.
Going forward with our growing backlog ample liquidity diversified end markets and growth initiatives.
All highlighted by our acquisition of Excel.
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.
For 2022, we are continuing to focus on driving revenue growth by market and sales reach expansion primarily through diversification.
New product development and strategic Capex for competitive advantage.
And a disciplined approach to accretive acquisitions.
For the battery energy products business, the strategy for market and sales reach expansion.
Is about diversifying more into the global commercial markets and the international government defense markets.
To lessen any dependence on the U S government defense market.
To that end, we're very excited to have completed the acquisition of the Excel Battery group based in Canada and with operations also in the U S.
For $23 5 million on December 13th.
This acquisition supports our diversification into commercial markets.
While providing further scale of our battery energy products business.
Realizing cost synergies and.
And driving the proven operating leverage of our business model.
It expands our participation.
In a variety of industrial markets, including downhole drilling OEM industrial and medical devices.
And further exposes us to new currently Unserved OEM device verticals, such as automated meter reading ruggedized computers and mining in.
And other mission critical applications.
Which demand Uncompromised safety service reliability and quality.
As a profitable and well run company <unk>.
<unk> is a leading independent designer and manufacturer of high performance Smart battery systems battery packs and monitoring systems to customer specifications.
Sell possessing an organizational culture and business model similar to our own.
With experienced technical and sales resources, which we plan to utilize and progressing progressing our global new product and selling initiatives.
The initial 100 day functional integration plans are in full execution mode and the acquisition transaction is expected to be accretive on an EPS basis within 12 months.
For Q4 of 2021.
Overall global Beanie medical revenue represented 30% of total battery and your product sales.
Demand from current customers was for applications, such as ventilators respirators and infusion pumps digital X Ray.
Surgical robots and vital signs monitoring devices.
We also received over $8 $8 million in delivery orders from existing medical customer blanket <unk> multiyear agreements.
Q4 oil and gas and subsea electrification commercial revenue was approximately 17% of total <unk> sales.
We continue to see improvement in our core oil and gas business, which drove up total Q4 oil and gas revenues at a strong double digit rate year over year in.
And capped off a total year 2020 revenue increase of 27%.
As contemplated as part of the acquisition a few years ago.
Our Sui operations continue to diversify their capabilities.
Saudi supporting our engineering efforts for overall company product development in both medical and government defense end markets.
We are also truly excited about a further additional sales and operating leverage in the oil and gas space as a result of our newest acquisition of Excel battery.
On the International Government Defense, Brian in Q4, we received an order for our lithium manganese dioxide 50, 390, <unk> 50, 790 primary batteries from an international customer.
Which will ship within the next 12 months and with additional follow on awards possible.
<unk> Q4 U S government defense business represented 22% of total <unk>, new product sales, consisting primarily of radio batteries and Chargers to OEM primes.
In Q4, we were also very pleased to announce a $9 $9 million follow on be a $53 90 primary battery IQ Award from DLA.
In the meantime, we do have a separate small delivery order to complete under a prior 50 at $53 90, IQ contract, which is expected to ship in the first half of this year.
Regarding the wearable conformal battery IQ contract, which we announced last May we continued product development and component testing towards the first article testing schedule.
<unk> to begin in the latter part of 2022, demonstrating full compliance with the contractual product specifications and program requirements.
As a reminder, regarding these two <unk> contracts actual delivery orders, including quantities and timing are at the discretion of the Dod.
New product development remains a core element of our organic growth strategy and during the fourth quarter. We continued to advance several of our multi year development, new products, including but not limited to.
Our next generation medical cart battery.
High capacity Smart you won battery.
<unk> 50, 790 million and XR 1238, <unk> blend primary batteries.
OEM public safety radio batteries and.
And next generation Ruggedized modular large format energy storage batteries.
The next generation medical Cart battery is now undergoing field trials at customer sites.
And we also expect to showcase it at upcoming healthcare information and management system Society Trade show in Orlando, Florida. This March.
This product was conceived designed sourced and manufactured over multiple ultra white locations, leveraging our worldwide technical talent and delivering a product suitable for our global customer base.
Initial customer response has been very positive.
New product development and multi generational product planning continues to keep us current with market needs and gives us the opportunity to remain close with and price value to our key customers.
In addition to the investment in new product development of multi generational product planning. We're also continuing to deploy strategic capex investments in our facilities to strengthen our competitive differentiation.
The new manufacturing line at our Newark, New York facility.
Our new lithium manganese dioxide primary three volt cell as startup of billing initial customer orders.
Customer feedback is favorable on our products performance safety and contribution to the OEM devices competitiveness.
Performance <unk> has been demonstrated in our high rate or power capability, which is particularly useful and illumination devices and.
And medical devices with short high pulse rate applications.
We also continue to undergo customer evaluation.
Of a similar form factor three primary cell <unk>.
Except where they see FX blended battery chemistry.
Which will offer significant longer run time, affording enhance system reliability to address growing applications in the Iot remote sensor and medical markets.
And our China facility.
Where we are now in the second phase of our project to upgrade our final chloride primary E ourselves with.
With customer feedback on the improvements made so far contributed to be continue to be positive.
And backed up by initial orders.
For this product.
Which can be required to operate anywhere from five to 10 to 20 years.
<unk> have long testing and qualification periods and when product performance has validated leads to sticky customer relationships.
In addition, this several stage project to make product and process improvements will result in a multiple increase of our total available market.
With newly identified final chloride ESL commercial and industrial applications.
In Q4, we began seeing the first production results from this qualification process and we expect to see continued revenue acceleration in 2022 and 2023.
Our global medical and other industrial customers continue to tap into our China operations for supply of cells and battery pack solutions, which is growing our value proposition and.
In Q4, our total China operations revenue was up 42% year over year and indicate a growing demand for our China capabilities.
Our goal is to produce the highest value proposition best quality and safest products.
In close collaboration with our end market and OEM customers.
Whichever one or more of our global locations best serve their supply chain.
Looking at our communication systems business in Q4, our new product development revenue from products less than or equal to three years old represented approximately 59% of communication systems sales.
For the U S Army's handheld manpack small form fit and leader radio programs.
We are working the supply chain in preparation for manufacturing delivery later in 2020 to the previously announced $4 2 million vehicle amplifier adapters or.
As an ongoing DAA provider for.
The various radio programs, we believe we are well positioned for future awards.
Support to military radios is at the core of the communication system products.
And our new initiatives currently underway with a tier one defense partner to develop a unique power solution for radio integration into aircraft.
Early development units were well received in the next round of advanced integration is ongoing for testing throughout 2022 with procurement potential production units in 2023 and 2024.
Supply chain issues continue to impact the communication systems business.
We entered 2022 with a backlog of approximately $8 million supporting orders for 21 amplifier upgrades radio power supplies speaker kits and non standard vehicle communication kits, However, electric component availability and extended material lead times have negative, particularly.
Italy impacted manufacturing timelines and revenue forecasting.
For components that are available delivery challenges are often compounded with increased transportation and logistics costs.
Our team continues to work closely with customers and suppliers to mitigate the supply chain and manufacturing impact as much as possible.
Regarding our communication systems teams push into commercial markets. We delivered initial low rate production units of our mobile data card in Q4.
These units enable.
<unk> of autonomous vehicle data during testing and manufacturing of the vehicles.
And are currently undergoing test and evaluation.
With customer initial feedback provided an adjustments being made while waiting on final reports.
This product is the first pure commercial nongovernment defense product offering for communication systems.
And a significant milestone for the team.
Our second commercial product under development is a virtualized radio access network and closure.
Supporting <unk> network deployments worldwide.
Which was delayed due to material acquisition issues. It is now ready to ship to the customer for initial testing evaluation with production volume orders expected to begin in 2023.
The diversification into commercial products.
With our continued participation in ongoing global military radio programs.
Our long term growth potential.
The communication systems business.
In closing for the fourth quarter of 2021.
We were very pleased.
To close the <unk> battery acquisition.
To receive the next leader radio PAA follow on contract.
As well as the next be a $53 90 <unk> Award.
While continuing to make key progress on.
And several of our new product development projects.
Although we begin 2022.
Still under the Covid supply chain and inflation cloud.
We believe we are well positioned for financial performance improvement as the year progresses.
As a result of.
The immediate revenue lift from the acquisition.
The strong organic revenue carryover backlog.
Our exposure to the oil and gas recovery.
Several of <unk>.
I'd IQ awards in various stages of maturity, including the $53, 90% 50, 790, and conformal wearable batteries.
Initial revenue realization from some of our new product development projects.
Such as from the new ER and see ourselves.
The new medical cart batteries.
And several new communication systems integrated computing, <unk> and AI commercial solutions.
During 2022, we remain aggressively focused on the items within our control.
Namely completing our existing new product development projects.
Integrating our latest acquisition.
Continuing to bolster our teams.
And looking for additional transformational growth opportunities.
Organic or through acquisition.
That deliberate new meaningful sustainable annual revenue streams in attractive growth markets from new competitively differentiated products and solutions.
The major industries, we serve military defense energy and medical.
Provide us the fertile base durability and resiliency to ride out the current economic challenges.
As we progressed through 2022, we will continue to optimize our financial performance.
Targeting total year profitability.
Cash flow from operations and maintaining our strong balance sheet.
While supporting transformational products and investments.
Our goal in 2022.
<unk> returned to a next year.
Of profitable growth.
Operator. This concludes my prepared remarks and be happy to open the call for questions.
Okay.
Thank you Amit.
Good question Blayne signals that predicting THAAD one.
Okay.
If you're using a speaker.
Immune function.
So long as signup for each of our groups.
Once again press star one to ask a question.
And we will take a question from John Sullivan with the benchmark.
Please.
Yeah.
Hey, good morning.
Good morning, Josh.
Sure.
Or is the supply chain issues can you just expand on some of the specifics how much of the headwind is lack of receiving needed components to make your products versus customers, taking the product at this point.
Yes, I think we will be divided into two pieces and the piece, we can control I'll call the much easier piece.
Our supply chain so in our case.
We purchased sells on a forward basis, you'll see our inventory increased we probably spent $3 million.
Just to pay in advance.
For the opportunity to supply needed cells to fill the back orders.
And.
It wasn't easy.
Being in a position to.
To obtain those cells and it hurts even more when you have to pay in advance, but that's reality.
The piece that we can control our supply chain for the most part is something that I think our folks have done a very good job at.
The parts, we can't control when certain individuals in our supply chain. Despite all the precautions we take.
Come downward COVID-19 or are exposed to COVID-19 and it puts align.
<unk>.
The lamp for a week or possibly longer that certainly hurts one of the tougher parts. Josh is the part we can't control and Thats the customer supply chain because the customer in a lot of cases is of course is telling us when they want to accept the goods now they want our components, but our customer.
<unk>.
Sure.
Our OEM device are companies.
With a lot of different components coming in ours being just one of many so that's the really the part that we can't control. So I would say if I have displayed up 50% of it is what we can control 50% of it is what we can't control the part that we can't control we see.
The big increase in backlog and we have not had any cancellations of any orders whatsoever, and it's just forcing what.
What used to be weekly now daily and sometimes hourly communications with our supply chain.
And our customers.
Got it thanks for that.
And then on the defense business what are your thoughts on the continuing resolution if we get a budget spring summer ahead of the midterm elections, what orders look like versus maybe a worse or worst case scenario for a full year CR.
Yeah, we're really found a lead of our major OEM primes.
Theres been a number of recent announcements and activities that would suggest that we could be in a favorable position.
In terms of some of the transactions that would come straight from DLA.
We have much less visibility to those so I would say we are cautiously optimistic but we're.
Not counting anything for sure and in the back log comments that we provided.
We certainly didn't have anything included in there and our IDI cues, we don't really count anything in our backlog unless we have a firm delivery order for it so I would say, we're cautiously optimistic but.
It's been a pretty up and down year over last couple of years and so we're not trying to get ahead of ourselves in terms of expectations.
Got it got it.
And then on the <unk> acquisition.
Where did you see the biggest opportunity was it was it the new products in oil and gas was at synergies on capacity or something else. Maybe if you could just walk through some of the thought process there.
When we look at any acquisition, Josh and we go through a lot of.
Dozens and dozens of different opportunities.
The things that we.
Consistently look for.
As we look for acquisitions, where.
The day after we buy them.
It's not their high watermark for revenue.
Look for businesses that in their own right are growing.
And we saw that with certainly with EXL.
The second thing we look for as we look for.
Clear visibility to a return to an operating margin rate that was.
Equal to or better than the operating margin rate that we had as a company prior to the acquisition, meaning that there had to be Henry visibility to profitability is not just some future expectation that's not we're not able to connect the dots on yet a third.
We look for accretion.
On an EPS basis within 12 months.
In this case this was an ongoing viable business that we understood. The culture, we understood the markets we understood the business model for <unk>, and we could see a clear path to accretion within 12 months and then of course.
A reasonable retaining retained a return on investment so.
We go through lots of different deals.
And we're constantly having new deals brought to us.
And if we put it through those four criteria and essentially XL checked every single box and then.
No Thats, just really from a financial perspective, and making sure. It makes sense on an economic basis, but with.
The other thing that really excites us about it is that the people that we got we've talked about it in other acquisitions in the past.
We get a great bunch of people in terms of their technical capability is to apply our products to new markets.
They get the opportunity to sell some of our products that they may not have had access to before we get to sell some of their products.
But fundamentally it's an ongoing operation is profitable that will continue to grow organically. After the acquisition and those are some of the things that we saw in <unk> just wanted to do the acquisition.
Got it got it.
And then just lastly on the communications promotional for US how should we think of investment versus timing of returns versus your historical business. How are you going to balance those two.
That's a good question.
They both involve.
Sense of development.
And <unk>.
Customer.
Evaluation and acceptance testing.
I think that the way we're looking at it is that they.
They accentuate our capability to provide.
Highly technical integrated solutions, and sort of a battle hardened and closure and capability, that's very consistent with our military defense, but isn't so subject to the ups and downs and cyclicality of the military defense business. So.
I think it's a good.
Complementary fit to our overall capability.
Is it good diversity.
Communication from our government from our government defense business.
And we're cautiously optimistic about it they do have some long cycle times.
But and we've been commenting and now I know for several quarters, we're starting to see some low rate production shipments and so we're quite optimistic about it but like anything else we've got to execute.
Delivering good results.
Great. Thank you for the time.
Thank you Sir.
As a reminder to ask a question press star one.
It appears we have no further questions at this time I would like to turn the conference back to our speakers for any additional or closing remarks.
Well, great well. Thank you once again for joining our fourth quarter 2021 earnings call. We look forward to sharing with you our quarterly progress on each quarter's conference call in the future is.
As Phil mentioned, we also updated our investor presentation on the website. So please check it out and have a great day.
Yes.
Ladies and gentlemen, this concludes today's call. Thank you for your participation you may now disconnect.