Q4 2024 Ultralife Corp Earnings Call
On today's call are Mike manner, Ultra life's, president and CEO and Phil Fain Ultra lives as Chief Financial Officer.
Speaker Change: The earnings press release was issued earlier this morning, and if anyone has not yet received a copy I invite you to visit the Companys website Ultra life Dot com, where you'll find the release under Investor News in the Investor Relations section.
Speaker Change: Before turning the call over to management I'd 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 from those projected as a result of various risks and uncertainties.
Speaker Change: Potential risks and uncertainties that could cause actual results to differ materially include uncertain global economic conditions reductions in revenues from key customers delays or reductions in the U S and foreign military spending acceptance of our new products on a global basis, and disruptions or delays in our supply of raw materials and components due to business conditions.
Speaker Change: <unk> global conflicts, whether or factor is not under our control.
Speaker Change: 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.
Speaker Change: The company undertakes no obligation to publicly update forward looking statements to reflect subsequent events or circumstances.
Speaker Change: Further information on these factors and other factors that could affect ultra life's financial results is included in the company's filings with the Securities and Exchange Commission, including the latest annual report on Form 10-K.
Speaker Change: In addition on today's call management will refer to certain non-GAAP financial measures that management considers to be useful and differ from GAAP. These non-GAAP measures should be considered supplemental to corresponding GAAP figures.
Speaker Change: With that I'd now like to turn the call over to Mike Our CEO. Good morning, Mike. Please go ahead.
Mike: Alright. Thank you good morning, everyone welcome to our call and Ultra life's Q4, and full year 2024 operating results.
Mike: Earlier. This morning, we reported Q4 sales of $43 $9 million with an operating income of $1 $5 million, which includes a $1 $1 million of one time cost directly related to the electric <unk> acquisition, which resulted in <unk> <unk> EPS.
Mike: For the full year, we reported $164 $5 million in sales with an operating income of $10 million, resulting in 38 of EPS for the year.
Mike: We continue to improve operations in key areas throughout 2024.
Mike: Paying down a considerable portion of our debt in the first half of the year affording us the opportunity to complete our largest strategic acquisition to date of electric EM solutions.
Mike: Electric <unk> solutions with their high temperature high vibration line of final chloride cells was a key supplier prior to the acquisition now.
Mike: Now as a vertical integration capability to our oil and gas business officer offers us the opportunity to expand into Mitchell critical adjacent markets and creates material cost synergies with our other lithium cell businesses worldwide.
Mike: With added key resources in critical areas to support future growth expectations, a pipeline of new products across the variety of valued markets and the expanded aperture of our sales funnel I look forward to a strong 2025.
Mike: I will turn it over to Phil to talk through the detailed numbers.
Phil: Thank you, Mike and good morning, everyone.
Phil: Earlier. This morning, we released our fourth quarter results for the quarter ended December 31, 2024, we have also filed our Form 10-K with the SEC.
Phil: And have updated our investor presentation in the Investor Relations section of our website, which includes a recap of our most recent acquisition electric Ken.
Phil: As noted in our March 7th press release, we are reporting our fourth quarter results.
Phil: And filing our Form 10-K with the SEC later than usual to allow for the completion of our accounting close and audit for the inclusion of electric him, which the company acquired on October 31 2024.
Phil: They are related accounting is presently reported to us by their former parent company under a transition services agreement.
Phil: And now turning to our financial results for the fourth quarter.
Phil: Consolidated revenues totaled $43 9 million compared to $44 5 million for the fourth quarter of 2023.
Phil: Revenues from our battery and energy products segment were $39 9 million compared to $35 7 million last year excluding.
Phil: Excluding the $6 1 million of electrical sales for November and December sales for this segment declined $1 9 million or five 3% year over year.
Phil: A 48, 1% increase in government defense sales and a one 6% increase in oil and gas sales were offset by a 47, 2% decline in medical battery sales compared to last year. When we recorded the highest level of medical sales in the company's history.
Phil: And a four 4% decline in industrial market sales, reflecting timing of orders.
Phil: The sales split between commercial and government defense for our battery business was $70 30, compared to $77 23 reported for the 2023 quarter and the domestic to international split was $62 38 compared to $48 52 for the 2023 period.
Phil: Demonstrating the heightened domestic demand for our U S government defense products.
Phil: Revenues from our communications systems segment of $4 million declined 55, 1% from the $8 8 million, we reported last year.
Phil: Primarily attributable to large shipments in the 2023 period of vehicle amplifier adapter orders to a global defense contractor for the U S Army and have integrated systems of amplifiers and radio vehicle amounts to a major international defense contractor.
Phil: For which shipments had been delayed from earlier periods due to supply chain disruptions.
Phil: The year over year comparison was compounded by the timing of a follow on leader radio order expected in the third quarter of 2024 that was not received until October thus pushing fulfillment into 2025.
Phil: On a consolidated basis, the commercial to government defense sales split was $62 38 for both the 2024 and 2023 full years.
Phil: Our total backlog with high confidence orders exiting the fourth quarter was $102 2 million and remains diverse in nature across our commercial and government defense customer base.
Phil: The replenishment rate remains high and the backlog represents.
Phil: Very healthy 62% of TTM sales.
Phil: Our consolidated gross profit was $10 6 million down 7% from the 'twenty to 'twenty three period.
Phil: As a percentage of total revenues consolidated gross margin was 24, 2%.
Phil: 140 basis point decline from the 25, 6% reported for last year's fourth quarter.
Phil: Gross profit for our battery and energy products business was $9 3 million compared to $9 million last year and.
Phil: An increase of three 8% gross margin was 23, 4% a 180 basis point decrease from the 25, 2% reported for last year's quarter, primarily due to both lower medical battery sales and factory cost absorption as well as purchase accounting adjustment.
Phil: For our.
Phil: Acacia systems segment gross profit was $1 3 million compared to $2 4 million for the year earlier period.
Phil: Gross margin was 31, 9% compared to 28, 7% last year, primarily due to favorable product mix and price realization, partially offset by lower factory volume.
Phil: Operating expenses were $9 1 million, an increase of $1 4 million or 17, 7% from the year earlier quarter <unk>.
Phil: Included in the $9 $1 million is $1 8 million related to the inclusion of electric him and onetime acquisition costs.
Phil: Our spending.
Phil: For the addition of experienced sales and marketing resources to drive future growth was offset by lower General administration expenses.
Phil: As a percentage of revenues operating expenses were 28% or.
Phil: Or 18, 4% when excluding the onetime acquisition costs.
Phil: <unk> to 17, 4% for last year's fourth quarter.
Phil: Operating income was $1 5 million compared to $3 6 million last year, primarily reflecting the 55, 1% decline in communication systems sales and the one time acquisition costs and related GAAP adjustments.
Phil: Accordingly, operating margin decreased to three 4% for the fourth quarter compared to eight 2% for the.
Phil: 2023 fourth quarter.
Phil: Other expense reported below operating income was 1.1 million for the quarter compared to $36 for the year earlier period, primarily resulting from the increase in interest expense on the acquisition debt and the impact of foreign currency fluctuations.
Phil: Our tax provision for the fourth quarter was <unk> 3 million.
Phil: For both periods computed on a GAAP basis at statutory rates.
Phil: Net income was <unk> 2 million or <unk> <unk> per share on a GAAP fully diluted basis. This compares to net income of $2 9 million or <unk> 17 per share for the 2023 quarter.
Phil: Adjusted EBITDA defined as EBITDA, including noncash stock based compensation expense and one time acquisition costs and noncash purchase accounting adjustments.
Phil: With $3 9 million or eight 9% of sales compared to $4 8 million or 10, 7% for the prior year quarter.
Phil: Adjusted EBITDA on a TTM basis is $16 5 million or 10% of sales.
Phil: Turning to our balance sheet. We ended 2024 with working capital of $67 9 million and a current ratio of three three compared to $66 5 million and $3 eight for 2023 year end our liquidity.
Phil: <unk> remained solid.
Phil: Going forward, our backlog diversified end markets, the sheer volume of our growth initiatives.
Phil: Ongoing actions to improve our gross margins and our new sales and marketing leadership position us well to realize the leverage of our business model.
Mike: Before turning it back to Mike I will update you on a few subsequent events.
Mike: First regarding our business interruption claim resulting from our January 25, 2023 cyber attack.
Mike: We have taken legal action.
Mike: After almost two years of discussions forensic audits submissions of supporting materials and meetings with our in our insurance underwriter and receiving only 235000, a bit business interruption loss against our policies.
Mike: Andrew that Lyle liability limit of $3 million on.
Mike: On February 4th we filed a complaint against the underwriter and the Supreme Court of New York Wayne County to prompt a fair settlement consistent with their facts.
Mike: Our main point of contention.
Mike: Is that the underwriters has taken the position that our business was only impacted for a seven day period. Despite the fact that our comprehensive detailed records and those are the outside vendors, who assisted us substantiate a significantly longer period.
Mike: Having reached a sale Nate we deemed it necessary to pursue legal recourse in the county, where our headquarters is located seeking a fair settlement through a jury trial.
Mike: Second on March 27, the IRS informed us that our $1 5 million employee retention credit.
Mike: Under the Corona virus aid relief and economic Security Act.
Mike: Filed on June 22023 has now been approved and that we should expect a refund plus interest shortly upon receipt. These funds will be used to reduce our acquisition debt.
Mike: Third as provided for in the stock purchase agreement signed in connection with our acquisition of electric him in early January we informed the seller of a working capital adjustment and are proceeding with the agreed upon process in that agreement to determine the final resulting purchase price adjustment.
Mike: We are not able to mutually agree upon the adjustment any disputed amounts will be submitted to an independent accountant for final resolution.
Mike: And last.
Mike: We have identified a material weakness in our internal control process, which is reflected in the opinion of our independent public accountants included in our Form 10-K.
Mike: With the acquisitions completed over the last few years, we have identified a need for additional qualified accounting personnel to fortify our execution and monitoring of internal controls.
Mike: We have commenced our search for additional personnel, including certified public Accountants and have recently hired a VP of financial growth transition in efficiency and a controller for electric him. His initial steps.
Mike: With our intention to have the requisite accounting staff in place in 2025.
Mike: I will now turn it back to Mike.
Mike: Yes.
Phil: Thank you Phil for the detailed review of the Q4 and full year 2024 results.
Phil: As mentioned on previous calls we had three major 2024 priorities to accomplish first continued material cost deflation. We had several wins in this category in 2024, where we negotiated down pricing on our lithium foil electric lights, and some printed circuit boards, all key components to our battery business in Q4.
Phil: <unk>, we signed a long term supply agreement with a major customer for both businesses, giving us enhanced coverage and visibility over a rolling three year time horizon, which enables us to increase supply chain efficiency and cost leverage through volume commitments.
Phil: Secondly, lean productivity, we continue to work lean projects throughout the company to offset the rising cost of labor overhead and materials and has started to play out projects that are new electric <unk> acquisition.
Phil: We completed six major lean projects in 2024 four.
<unk> Newark, one in Houston, one in Virginia Beach that allowed for a minimum of 30% greater throughput and efficiency through our lines, which in turn frees up labor and space for other uses.
Phil: Lastly, sales funnel improvement.
Phil: We modified the sales leadership in the battery products group and updated our sales funnel capture tools in Q4 to better drive growth and monitor progress we have a new chief marketing officer, starting in the new year brings over two decades of experience to further drive and coordinate our messaging brand strategy and customer capture activities.
Phil: For the entire business accelerating future growth.
Phil: Q4 saw a large effort of integration and transition to begin with the electric count Tam edition on October 31.
Phil: Where we successfully transitioned payroll and benefits to ultra light systems.
Phil: Armed working groups for materials procurement and lean activities and started working carve out of their ERP and quality systems from their previous parent.
Phil: As we enter 2025, the operator operational priorities are to complete the transition of electric Crem acquisition.
Phil: <unk> fully into the ultra life back office, which includes such items as cloud storage E Mail and office with the main one being the ERP system, which is expected to complete by the end of Q2.
Phil: We continue to leverage and grow vertical integration opportunities due to the newly acquired business, which allows electric themselves to be used in some of our current pack assemblies and expands our addressable market for products like pipeline inspection seismic telemetry and sonobuoy.
Phil: Lastly, we need to grow our sales opportunity pipeline to support growth and improve and stabilize gross margin through pricing material cost deflation and productivity projects in both the battery and energy and communication businesses in 2025.
Phil: Next I will give updates on the organic growth projects and new product development underway for the businesses, which are key to future sales and market expansion.
Phil: The communication systems businesses are expanding the Ruggedized server case portfolio to service customers and expand market share.
Phil: The earlier mentioned DC power supply to support vehicle and remote use of our <unk> thousand case has completed validation and is available to order now.
Phil: We have a smaller lighter portable case in development, which is in Porto type state currently with expectations. These will begin fielding late 2025.
Phil: The recently launched new amplification product targeted to be radio agnostic to support international customers will be available for preproduction sampling and testing in June we internally developed as an amplifier to further support the needs of the war fighter with what we believe it is a smallest lightest most power efficient <unk>.
Phil: <unk> amplifier in the marketplace.
Phil: Meanwhile, we are advancing our next generation high performance amplifier targeting all advanced radio platforms used by the U S. Armed forces. This amplifier continues our heritage as a small high power high efficiency man worn and vehicular amplification products with the next variant available in late 2000.
Phil: 25.
Phil: Lastly, the communications group has developed a handheld radio vehicle Mount upgrade kit, which allows the installed base of single channel radio mounts to be enhanced for compatibility with all the newer two channel handheld radios. This kit will be available for sale in Q2 of 2025.
Phil: On the battery and energy side of the business. We are excited about the opportunity funnel growth across a variety of new and exciting products and are optimistic we will see orders in 2025.
Phil: As previously mentioned, we have set up initial production equipment for our attune sold to support customers in the medical wearable space and several applications in item tracking.
Phil: The sales funnel continues to strengthen with multiple projects now in the qualification phase I am pleased to report a key partner that we have been collaborating with for multiple years on a medical wearable product has successfully completed FDA and EU MTR certifications for their back office system in Q4.
Phil: This now allows the system to be sold and installed in hospitals, which is a key milestone for the commercialization of their product we expect to see production orders by mid year 2025, with some initial volume shipping late this year.
Phil: The <unk> product line currently supporting Iot and illumination markets has seen opportunity funnel growth in the medical battery pack Assembly area, both domestic and international customers.
Phil: We have recently increased the high temperature capability of this product with some targeted design improvements that will transition into production in mid 2025.
Phil: Our improved vinyl chloride product targeting monitoring telemetry applications.
Phil: <unk> application in field testing with several customers.
Phil: Interest in our flagship 19 Amp R&D sales continues to grow with multiple customers now testing the product and we expect production orders in 2025.
Phil: With the addition of the electrical business on October 30, <unk>, our expected collaboration and sales opportunities to continue to expand in the final chloride space.
Phil: The conformal wearable battery initially developed as part of the <unk> system has continued to advance as a commercial version is an internal development project we.
Phil: We have quoted multiple international production opportunities and expect small volumes to start shipping in Q1 2025.
Yes.
Phil: We continue our key gross margin initiatives and expect to see steady improvement as capex investments lean projects and material efforts continue to enter our production lines.
Phil: Regarding the electric <unk> acquisition, we expect to main integration activities, including the ERP carve out to be completed in the first half of 2025.
Phil: As stated in the opening with the added key resources in critical areas to support future growth a pipeline of new products Prime for shale across a variety of valued markets for both businesses. The expanded aperture of our sales funnel.
Phil: Plus revenue and scale of the acquired electric home business I look forward to a strong 2025.
Thanks, everyone that concludes includes the prepared remarks for today, we'll go back to the operator for questions.
Phil: Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered or you wish remove yourself from the queue. Please press star one again, we will pause for a moment, while we compile our Q&A roster.
Yeah.
Phil: Our first question comes from Josh Sullivan with the Benchmark Company. Your line is open.
Josh Sullivan: Hey, good morning.
Speaker Change: Thanks, Jonathan.
Josh Sullivan: So if we just look at electric.
Josh Sullivan: Where are you guys ahead of schedule and then.
Josh Sullivan: Where are the major hurdles at this point.
Speaker Change: I missed your first piece there Josh if you could just repeat that first yes, sorry. It was just where are you maybe ahead of schedule with electric and some of the some of the positive ads and then the other side of the ledger, where are the major hurdles and timelines.
Speaker Change: Right now on the electrical side of the business. The ahead piece I would say is we are already a customer of electric Kevin we already utilized ourselves in some of our packs, which some customers on our our oil and gas business. So it's really.
Speaker Change: Moving in those cells into some other sales opportunities and some already self.
Speaker Change: Sell through business will immediately will impact the bottom line.
Speaker Change: That's where I would say we're ahead.
Speaker Change: I would say we are.
Speaker Change: The biggest hurdles right now is really just getting total control over the business and getting it out of their previous parent.
Speaker Change: Even this call is weeks later than we expected it to be because they are working on closing their own books as well as China.
Speaker Change: <unk> closed the books for Austin.
Speaker Change: We may or may not be a priority I'm not going to go down that path, but.
Speaker Change: They have things that they need to do.
Speaker Change: So it was there was some delays there we want to be able to control our destiny so to speak.
Speaker Change: <unk>.
Speaker Change: Got it and then as far as the comments just on the industrial sales timing.
Speaker Change: Part of that is just just a push out.
Speaker Change: And then what part of that is more macro related or any industry market weakness that might be out there.
Speaker Change: Hey, Josh yourself pushout.
Speaker Change: Okay.
Speaker Change: We don't see any economic trends I mean, we're if you look at the markets. We operate in I think I think we're in what I would what I call the right markets.
Yeah, I mean, I think some of the some of our customers over bought a little bit early in the year and they're trying to manage their year end inventories and spend and cash flow.
Speaker Change: And if they are pushed into 2025, where they didn't necessarily need it.
Speaker Change: Okay.
Speaker Change: And then on the thin cell medical opportunity.
Speaker Change: As far as initial production.
Speaker Change: What are you kind of tell us what that might look like this year and then.
Speaker Change: That ramp look like next year.
Speaker Change: Well.
Speaker Change: Yeah.
Speaker Change: Yeah, that's a great question, Josh I mean, this customer we've been in this journey for multiple years.
Speaker Change: I won't even mention how many because it has been a long time I think since the first time, we talked.
Speaker Change: It's still been a few years.
Speaker Change: So.
Speaker Change: So we're expecting.
We have about $1 million in our plan for this customer and I think they will hit that this year, maybe a little more.
Speaker Change: The follow on years, I'd say, its a large growth trajectory, but it's really all about.
Speaker Change: Hospital adoption in Capex spend as well.
Speaker Change: So we'll see how the overall macro economics work over the next 12 months.
Speaker Change: And how quickly the adoption happens.
Speaker Change: Okay. Thank you for the time.
Jeff: Thank you Jeff.
Jeff: Ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone.
Jeff: Okay.
Jeff: Again, ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone.
Mike: And I'm not showing any further questions at this time I'd like to turn the call back over to Mike.
Mike: Alright, well thanks, everyone for listening today's call. We look forward to talking to you next time during the Q1 2025 earnings call.
Mike: We will keep you posted on time and date for that.
Mike: Thanks, everyone Bye now.
Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: [music].