Q1 2022 Ultralife Corp Earnings Call
Good day and welcome to the Ultra Life Corporation first quarter 2022 earnings release Conference call.
At this time for opening remarks, and instructions I'd like to turn the call over to MS. Jody birthday. Please go ahead.
Thank you Ashley and good morning, everyone and thank you for joining US. This morning for Ultra Corporation's earnings conference call for the first quarter of fiscal 2022.
With us on today's call are Mike public Ultra lives, President and CEO and Phil Fain Ultra lives Chief Financial Officer. The earnings Press release was issued earlier. This morning, if anyone has not yet it's a copy.
Visit the website www ultra light or where you'll find the release under investor is 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.
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 that could cause actual results to differ materially include the impact of COVID-19 potential 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 forward looking 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.
Further information factors and other factors that could affect all drives financial results included in the ultra.
Filings with the Securities and Exchange Commission.
Including the latest annual report on Form 10-K .
In addition on today's call management will refer to certain non-GAAP financial measures that management considers to be useful metrics and differ from GAAP to.
non-GAAP measures should be considered as supplemental to corresponding GAAP figures.
With that I would now like to turn the call over to Mike Good morning, Mike.
Good morning, Jody and thank you everyone for joining the call.
Today I'll start by making some brief overall comments about our Q1 2022 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 our progress against our 2022 revenue initiatives before opening it up for questions.
For the first quarter of 2022.
<unk> demand drove our battery and energy products medical revenues up, 9% and oil and gas revenues up 20% year over year.
Organically growing our battery energy products business and when combined with the revenue boost from our XL battery group acquisition more than offset <unk>.
<unk> supply chain impacted government defense revenues in both battery energy products and communications systems.
This resulted in a 17% total company revenue increase over the prior year.
We also exited Q1 2022 with approximately $92 million in backlog.
An increase of 45% from the end of the previous quarter.
Operating earnings in Q1 continued to be pressured by global supply chain challenges with seemingly daily raw material and input component price inflation.
Not yet fully recovered with our price increases to customers.
Other gross margin headwinds included <unk>.
Substitute product identification classification and procurement costs.
Long lead time in manufacturing inefficiencies.
And new product transitions.
Nevertheless through price increases cost control and a positive earnings contribution of excel our team significantly narrowed the operating loss from the fourth quarter.
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 first quarter of 2022 financial performance Bill.
Bill.
Thank you, Mike and good morning, everyone.
Earlier. This morning, we released our first quarter results for the quarter ended March 31 2022.
We also filed our Form 10-Q with the SEC and have updated our investor presentation, which you can find in the Investor Relations section of our website.
Consolidated revenues for the 2022 first quarter totaled $30 4 million compared to 26.1 million reported for the first quarter of 2021.
An increase of 16, 9%.
Commercial sales increased 62, 1%, reflecting the contribution of excel and solid growth across virtually all commercial.
Commercial end markets, including medical oil and gas and industrial.
Government defense sales declined 38, 8% due to continued supply chain disruptions, including.
Increased lead times and components from suppliers and other related logistics matters.
<unk>, both our internal and customer manufacturing delivery schedules.
<unk> and delays in our shipments to future periods.
Revenues from our battery and energy products segment were $29 2 million compared to $22 1 million last year.
An increase of 31, 8% attributable to accel sales of $6 4 million.
And $2 5 million or 17, 2% increase in commercial sales.
Partially offset by a $1 9 million or 24, 1% decrease in government defense sales.
The increase in commercial sales, excluding excel consisted of a $1 1 million or 35% increase in industrial end market sales.
A point to $8 million or 20% increase in Sweden, <unk> oil and gas market sales.
And a <unk> 6 million or eight 5% increase in medical battery sales.
The backlog for our battery and energy products business of $82 9 million the highest in our history.
Includes $66 2 million requested for shipping in 2022 reps.
Representing an increase of $14 3 million over the comparable amount at year end 2021.
The sales split between commercial and government defense for our battery business was 80 20.
<unk> to 65 35 for the 2021 first quarter.
The domestic to international split was $50 50, compared to $57 43 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 were $1 2 million compared to $3 9 million last year, a decrease of 68, 3%, reflecting shipments delayed to future periods due to increased lead times on components from suppliers.
And the timing of orders placed by our customers.
We have identified eight sales opportunities, which were pushed out to future periods by our customers.
And data opportunities, which we did not have the components on hand to ship in the first quarter.
The backlog for our communication systems business of $9 million.
<unk> $7 6 million requested for shipping in 2022.
Representing an increase of one point or $1 billion over the comparable amount at year end 2021.
On a consolidated basis, the commercial to government defense sales split was $77 23 versus <unk> 50, 545 for the year earlier quarter.
Our consolidated gross profit was 7.1 million for both the 2022 and 2021 periods.
As a percentage of total revenues consolidated gross margin was 22, 9% versus 26, 9% for last year's first quarter.
Gross profit for our battery and energy products business was $6 7 million compared to $5 4 million last year.
Gross margin was 23, 1% a decrease of 130 basis points from 24, 6% reported last year.
Primarily reflecting raw material and component material cost inflation ahead.
Ahead of customer price realization.
Material usage variances on new product transitions into.
And the completion of the purchase accounting adjustments for finished goods inventory sell through related to the acquisition of itself.
For our communication system segment gross profit was <unk> 2 million compared to $1 5 million for the year earlier period.
Gross margin was 19, 4% compared to 39, 9% last year, reflecting lower volume, resulting in the under absorption of factory costs and unfavorable sales mix.
Operating expenses were $7 3 million compared to $6 1 million last year, an increase of $1 3 million or 24%.
The increase was primarily attributable to the addition of excel.
Excluding XL operating expenses increased <unk> 2 million, reflecting our continued investment.
In engineering resources and test materials dedicated to the conformal wearable battery idea Iq contract.
As a percentage of revenues operating expenses were 23, 9% compared to 23, 2% for last year's first quarter.
Operating loss inclusive of $1 million of purchase accounting adjustments and remaining <unk> acquisition cost.
Was <unk> 3 million compared to income of $1.1 million for the 2021 quarter.
Our tax benefit for the fourth quarter for the first quarter was <unk> 3 million compared to a provision of $2 million for the 2021 quarter computed on a GAAP basis.
Including the interest expense to help finance the excel acquisition net loss was <unk> 2 million or <unk> <unk> per share. This compares to net income of <unk> 7 million or <unk> <unk> per share on a diluted basis for the 2021 quarter.
<unk> was accretive by approximately <unk> <unk> per share.
Adjusted EBITDA defined as EBITDA, including noncash stock based compensation expense was $1 1 million or three 6% of sales.
Compared to 2.1 million or seven 8% for the first quarter of 2021.
Turning to our solid balance sheet.
To proactively manage our supply chain reduce the impact of potential component price increases and optimize our position to service our ryzen backlog.
We increased inventory by $3 2 million or nine 6% compared to year end 2021.
We ended the 2022 first quarter with working capital of $49 1 million in a current ratio of three five compared to $47 6 million and $3 five for year end 2021.
Debt to capital at quarter end remains low.
One five yes.
As a result, we remain well positioned to fund organic growth initiatives, including new product development and strategic capital expenditures.
Continuing to expedite our organic growth through accretive M&A.
Going forward with our growing backlog ample liquidity diversified end markets and growth initiatives we.
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 continue 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 acquisitions.
For the battery energy products business diversification and market and sales reach expansion has meant further penetrating the global commercial markets as well as the international government defense markets, which has helped deleverage our historical concentration in the U S government defense markets.
This was nicely demonstrated in the first quarter.
As our medical and energy markets revenue increases led to 3% of net beanie organic revenue growth.
In Q1, and including XL, the total commercial and international government Defense revenues represented approximately 82% of our total <unk> sales.
We remain very excited about the recent XL battery group acquisition.
As it is another step in diversifying our end markets.
Providing further scale of our battery and energy products business.
It bolsters, our it bolsters, our engineering and sales capabilities for it to precipitation expansion of existing energy industrial.
Industrial and medical markets and.
And penetration of new commercial markets, such as automated meter reading ruggedized computers in mining.
The initial 100 day functional tech integration plans are substantially complete.
And we are now transitioning itself.
Into the regular ultralight operating cadences.
The acquisition was EPS accretive in Q1 and revenues met expectations. Its first total quarter as part of the ultralight portfolio.
Overall global BD medical revenues represented approximately 26% of total battery energy products sales.
Demand from current customers was for applications, such as ventilators, respirators, and infusion pumps digital X ray and surgical robots.
We also received over $4 million in delivery orders from existing medical customer blanket <unk> multiyear agreements.
Q1 oil and gas and subsea electrification commercial revenue was approximately 31% of total be any product sales.
Driven by increasing oil prices and rig counts, we continue to see gains in our core oil and gas business.
Since the acquisition a few years ago, our Sui operations also continued to diversify their capabilities.
Solidly supporting our engineering efforts for product development.
In both medical and government defense end markets.
On the international government defense fronts in Q1, we received an order for our land warrior battery products, which will ship within the next 12 months.
<unk> Q1 U S government defense business represented approximately 18% of total b any product sales.
<unk>, primarily a radio batteries and Chargers to OEM primes.
We also have a separate small delivery order to complete under a prior $53 90, <unk>, which is expected to ship later this year.
The wearable conformal battery IQ contract, which we announced last May continues through the product development process and component testing with first article testing expected to begin in the middle part of this year, demonstrating full compliance with the contractual product specifications and program requirements.
Excellent idea IQ contract actual delivery orders, including quantities and timing are at the discretion of the Dod.
New product about remains a core element of <unk> organic growth strategy and during the first quarter. We continued to advance several of our multiyear development new products.
In March we showcased our X five next generation medical cart battery and power system at.
At the healthcare information and management system Society trade show in Orlando and has significant interest for both cart manufacturers and it professionals.
As evidence of this interest towards the end of the quarter. We received our first $2 million order for this new medical cart battery and power systems as well as additional accessories with shipments starting later this year.
We have also conducted demonstrations of the system at several Oems with positive results maintaining the momentum from a trade show.
Other new product development project currently underway include but not are limited to a higher capacity smart UN battery.
New 50, 790, <unk> blend primary batteries.
OEM public safety radio batteries.
And next generation Ruggedized modular large format energy storage batteries.
New product development and multi generational product planning continued keep us current with market needs and give us the opportunity to remain close with and provide value to our key customers.
In addition to the investment in new product development and multi generational product planning. We're also continuing to deploy strategic capex investment in our facilities to strengthen our competitive differentiation.
Progress continues at our Newark, New York facility on the new lithium manganese dioxide primary three books out manufacturing line.
We continue to see interest from Oems in our lighting and medical markets for the new three volt product.
Historically, we have developed technology to meet the stringent demands of some of the most challenging applications and the defense medical and industrial markets with unique products.
And our latest three volt product, we have leverage that technology to improve the power capabilities and more widespread applications.
This means lights that shine brighter in last longer in the led flashlight segment.
And longer operating time and medical applications, two large markets for this product.
We also have a customer evaluation underway for a similar form factor cell, except using a <unk> blended battery chemistry that was initially developed to provide longer lasting power to our warfighters and is now.
Now being tested and validated.
In commercial medical and industrial markets to provide some of the longer performing benefits needed for the most critical applications.
At our China facility, we are deep into the second phase of a multi stage project to upgrade our vinyl chloride primary ourselves and in Q1 <unk> cell production and customer testing has continued and with positive results.
While testing these products take a long time because of the demands of the applications. We are beginning to see some of the results of our sampling efforts.
Several customers are in various stages of our commercial activity.
Having an increase in our production of our ear product in our China facility.
With each stage of product and process improvements and newly identified vinyl chloride <unk> commercial and industrial applications. We are expanding our available revenue opportunity set.
We also continue to grow our China operations value proposition.
Global medical and industrial customers for the supply of ourselves and battery pack solutions.
In Q1, our total China operations revenue was up 13% year over year.
Our goal is to produce the highest value proposition best quality and safest products.
In close collaboration with our end market and OEM customers at whichever one or more of our global locations best serve their supply chain.
Looking at communication systems.
In Q1, new product development revenue from products less than or equal to three years old represented approximately 16% of communication systems revenues.
For the U S Army handheld manpack smile.
And leader radio programs, we continue working the supply chain in preparation for manufacturing and delivering later in 2020 to the previously announced $4 2 million dollar vehicle amplifier Adapters Award.
New product development activities for defense and commercial applications can continue in concert with several OEM partners to meet multiple emerging requirements and system integration.
One opportunity is a power solution for radio integration into aircrafts, where current efforts are focused on prototype refinement testing and field trials throughout 2022 with procurement potential production units in 2023 and 2024.
Another project is for an edge server system integration, which has completed multiple customer tests and evaluations. This configuration is a two K system with one housing the server and the other providing uninterrupted power supply backup with ancillary items.
Incremental small volume Dod orders continued in Q1 with delivery expected in Q2.
Regarding our communication systems team pushing the commercial markets.
The initial low rate production units of our mobile data card delivered in 2021 are undergoing operational testing with the customer conducting analysis of autonomous vehicle data during testing and manufacturing of the vehicles.
Our second commercial product is a virtualized radio access network enclosure supporting <unk> network deployments worldwide.
Which was delivered to a customer and now supporting test and evaluation by our cellular network provider for use in expanding <unk> market installation.
Communication systems initial entry into commercial products.
Leading to larger programs.
Combined with our strong participation in global ongoing military radio programs.
Provides a roadmap for long term sustainable growth.
In closing for the first quarter of 2022.
We were delighted to start the new year with strong commercial revenue generation boosted by the addition of XO.
As we progressed through 2022.
We are well positioned for additional revenue lift from.
The growing firm order backlog.
Our increased exposure to the oil and gas recovery.
The dry powder of multiple Dod IQ awards in various stages of maturity, including the $53 $68 $53 95 to 790 and conformal wearable batteries.
The initial revenue realization from the new medical cart batteries.
And our new CRM E ourselves.
Shipments against the latest leader radio via a follow on contract.
And several of our new communication systems integrated computing, <unk> and AI commercial solutions.
Our capabilities and the mission critical end markets, we serve military defense energy and medical.
Align well with current world events and needs.
Whereas supply chain related issues and inflation has continued to impact profitability.
We are encouraged by the directional progress made in Q1 and are expecting continued financial performance improvement.
About the remainder of the year as.
As manufacturing efficiencies return and.
And price increases start to hit the ledger.
We will also continue working with our suppliers and customers.
<unk> managed working capital including inventory.
To best position us for making customer delivery schedules.
And mitigating to the extent possible raw material and component shortages and cost inflation.
As a result, we are targeting total year profitability.
Solid cash flow from operations.
Maintaining a strong balance sheet, while supporting transformational products and investments.
Our goal in 2022 remains.
To return to a next year.
Our profitable growth.
Operator. This concludes my prepared remarks, we'll be happy to open up the call for questions.
Thank you and if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
A speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Again that is star one to ask a question.
We will now take our first question from Josh Sullivan of the Benchmark Company. Please go ahead.
Hey, good morning.
Good morning, Josh.
Just as far as supply chain dynamics. Your last you seem to be maybe a little more related to transit and other factors.
Staring down inflation can you just give some color on what supply chain issues are may be improving versus those that are maybe going to grow throughout 2022.
Hi, Josh Thanks for the question I think it would be difficult at this point to really call any victories of supply chain issues improving at this point.
I just think that we've.
We probably have a better process of.
Understanding what to be looking for.
We're working very closely with our suppliers to try to get a real beat on what deliveries looked like what cost increases potentially look like.
And then working very very closely with our customers to pass along that information.
Evaluate how their supply chain is looking.
We try to balance out.
Things are coming into us and things are going out from us with our customers to make prudent decisions.
But I think it would be difficult at this point to really point out anything in the overall supply chain situation thats dramatically improving at this point is probably just more where.
Getting more used to it and getting better at handling it and have broad and open lines of communication with both our suppliers and our customers.
Got it got it and then with new products moving into revenue generation year in 'twenty, two how should we think of margin progression.
Yes.
Margin progression should we expect an inventory build or marketing effort impacting margin just trying to get an idea of sequential.
The cadence through the year.
Yes, I think our cadence for the year as you look at all the various new products and where they are.
The transition process.
From the new product group, putting it over the wall into high volume manufacturing.
Historically, we can look back and we can see how long its generally taken and it seems that.
The timeframe that is take now has been extended because of the sheer quantity of the new products. So for US. The challenge is how we deploy best our manufacturing engineer in our in our operations leadership and personnel and.
Yeah.
Think Josh that we're going to see margin to build over the year because.
Corrado everything just like our cost increases with our suppliers, we paredo everything we know what to attack and we're.
The attack is in is in full gear and what we're attacking all quantify what were attacking is.
Is two to three.
<unk> I look at various buckets I think we feel that there is improvement in the 3% to $500000 range.
Getting to that.
<unk> as quickly as we possibly can.
And in doing so we're we're methodical we want to make sure that the mission critical products that we're providing are meeting the specs with absolutely no shortcuts and that has been our approach.
Got it got it and then.
Kind of related that the $83 million in backlog how much of that is related to some of these new products. You are launching this year a three volt crash carts, then so et cetera.
Well I would say a relatively small part of the the 90, let me just take you through the backlog the backlog is $92 million and then we break it down as to what is requested for shipping this year at $74 million of what is being requested this year versus $58 million what was requested for ships.
Last year the.
<unk> 92 million compares to $63 million as we exited the year. So as Mike said, it's a big 45% increase but a lot of it is just.
Either new products that are in the process of transitioning our have transitioned to high volume manufacturing.
And I would say that the majority is ongoing products.
A handful of products that are in the process of transitioning which includes some of the military batteries. Some of the public safety batteries and as Mike had mentioned the 2 million dollar order that we received for the medical carts. So the large majority are ongoing ongoing products that were.
Sure.
That were.
I would say comfortable with on the operation side, not so comfortable with on the supply and components site.
And then just on the <unk> acquisition, how is the integration progressing any new opportunities that you've seen that you've had some time to get acquainted.
No I mean actually it's been very exciting and very positive like as mentioned in the prepared remarks. The tactical stuff you want to go through immediately to make sure that it gets paid all the collections are being put into the right bank accounts and our customers are receiving the products they deserve.
And so now we're moving away in the next phase, where we can get more deeply into what.
There are some larger level cost synergies what are.
Some more strategic revenue synergies.
We found that the actual on the revenue side, there's actually very little overlap.
So we're participating in a broader energy market than we were before the acquisition.
We're looking at some short term small cost synergies to take advantage of but.
But at the end of the day of the thing that I always say that us and it certainly isn't pandering, it's the absolute truth I just love getting.
The talented people in our space and we have between the acquisition we did in the UK the.
The acquisition that we did with suite a couple of years ago and now with the XL.
We have some of the smartest and most experience.
Battery.
And battery pack engineers and sales people that there are in the marketplace and that's the most to me is the thing I get most excited about but so far so good I mean, we will come across issues from time to time and Thats, just the way businesses, but I'm very confident that with how we're positioned today and with the talent that we have on board both of our teams issues that do.
Come up we'll be able to stop pretty quickly.
Got it and then just one last one on the aircraft application.
Testing I think you've mentioned in the prepared remarks can you just expand on what markets are airframes, you're going after there.
And it's definitely in the military and Thats really about all I can say about this point, Josh but it's in the military segment.
Got it.
Thank you for the time.
Thank you John for the questions.
We will take our next question from Barry Lucas of Sandler. Please go ahead.
Hi, Thank you for taking my call.
Fair enough.
<unk>.
Purpose of the call.
To ask you.
You mentioned the.
<unk>.
Wearable battery.
And you mentioned.
You got the order in May.
Where do we stand with that order.
I think I heard you talk about the end of the year.
Wanted to clarify that.
Yes.
As we mentioned and what is pretty common for these large I D acute contracts, there's a pretty substantial.
Development period, and one of the milestone events at the conclusion of that development.
<unk> is the first article testing.
And we expect to be in sort of a formal first article testing.
Towards the middle part of this year.
And depending on the outcome of that which entered a process with the with the army.
Upon completion of that first article testing.
And checking that box then we would be in a position to potentially receive delivery orders. So the next major milestone is the initiation and completion of the first article testing, which we expect to start the middle part of this year.
Thank you very very much for answering the question.
Quite welcome Thanks for the question.
Yeah.
We will take our next question from Stuart.
Private Investor. Please go ahead.
Good morning, gentlemen, this is been a very professional presentation I've enjoyed it.
Recently, I read where Mr. <unk> exercise some stock options and I'm wondering when were those kind of options set to expire.
The options were set to expire.
The day two days.
Let's see.
Past the date that I exercise those options, so I helped us options.
Sure.
The life of the option absent two days, which was a full seven years now when I exercise those options I used what's called the net exercise method. So I retained all of the shares Sinan synonymous with the way I look at it with a purchase of the shares.
Yes that makes sense I just wondered when they were set to expire. So are you, saying that were set to expire 10 days. After that you would you exercise them.
Yes, absolutely.
Okay, well. Thank you very much have a nice day. Thank you for taking my call.
Thank you.
And as a reminder, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
There are no further questions at this time I'd like to hand, the call back to Michael for any additional or closing remarks.
Well, great well. Thank you once again everybody for joining us for this call in the first quarter of 2020 to recap.
Look forward to sharing with you our quarterly progress on each quarter's conference call in the future.
Bill mentioned and we update our investor presentation. That's on the website. So please check it out.
Have a great and safe day, Thank you very much.
Thank you that concludes the call. Thank you for your participation you may now disconnect.
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