Ultralife Corporation (NASDAQ: ULBI) — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; compared with FY2020. Unless noted, financial amounts are in millions of U.S. dollars (the filing reports dollars in thousands). This is an annual report, not a standalone fourth-quarter results filing.
Business context
Ultralife designs and manufactures batteries, charging systems, communications equipment, and integrated power and communications solutions for commercial, government, and defense customers. Its segments are Battery & Energy Products and Communications Systems. On December 13, 2021, the company acquired Excell Battery Group for a net purchase price of $23.5 million, expanding its custom battery and industrial-market business.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $98.267 million | $107.712 million |
| Gross profit / margin | $24.642 million / 25.1% | $29.159 million / 27.1% |
| Operating income | $0.035 million | $5.701 million |
| Net income (loss) attributable to Ultralife | $(0.234) million; $(0.01) per diluted share | $5.232 million; $0.33 per diluted share |
| Cash from operating activities | $4.325 million | $21.720 million |
| Capital expenditures | $2.814 million | $3.101 million |
| Cash at year-end | $8.413 million | $10.653 million |
| Working capital / current ratio | $47.6 million / 3.5 | $45.8 million / 3.4 |
FY2021 Adjusted EBITDA, a non-GAAP measure, was $4.418 million versus $11.289 million. The company reported $20.980 million in principal debt at year-end: $10.000 million under a term loan and $10.980 million drawn on its revolving facility. The balance sheet reports $18.857 million of long-term debt, net of debt issuance costs and current portion. The revolving facility is $30 million, subject to borrowing-base limits; the company said it was compliant with covenants.
Segment revenue and gross profit were $87.083 million and $21.063 million for Battery & Energy Products, and $11.184 million and $3.579 million for Communications Systems. Segment gross margins were 24.2% and 32.0%, respectively.
Material changes versus FY2020
- Revenue decreased 8.8%. Battery & Energy Products revenue fell 5.2%; Communications Systems revenue fell 29.2%.
- Commercial sales increased 2.8%, while government and defense sales declined 24.7%. Lower defense revenue reflected the non-recurrence of large 2020 battery and vehicle-system deliveries; medical sales also fell from the pandemic-driven 2020 surge.
- Gross margin fell 200 basis points, reflecting supply-chain-related lower factory throughput, new-product production transition costs, and unfavorable mix. Operating expenses rose 4.9%, including increased engineering investment and Excell-related costs.
- Operating cash flow fell to $4.325 million from $21.720 million. The 2020 result benefited from working-capital reductions. FY2021 investing cash use included $23.519 million for Excell; acquisition financing contributed $20.980 million in credit-facility borrowings.
- Excell contributed $1.131 million of revenue and a $0.128 million net loss after acquisition. The reported 2021 results include only its post-acquisition period.
Outlook, risks, and unusual items
- Management estimated COVID-19 and related supply-chain disruption reduced FY2021 sales by about $11 million, operating income by $4.5 million, and net income by $3.4 million (about $0.21 per diluted share). Delayed shipments contributed to a year-end backlog of $63.324 million, including Excell, up 61.2%; the company expects the backlog to ship during 2022.
- Management expects positive operating cash flow and says cash and revolving-facility availability should meet financing and investing needs. It expects R&D spending could rise 10% or more from 2021 levels; the filing gives no quantified earnings or revenue guidance.
- New awards include U.S. Army conformal wearable batteries, with a three-year base-period ceiling of $168 million and potential options of up to $350 million; DLA awards include ceilings of $49.8 million for BA-5790/BA-5795 batteries and $9.9 million for BA-5390 batteries. These are indefinite-delivery/indefinite-quantity contracts, not guaranteed sales. First Article Testing for the Army award was scheduled for the second half of 2022.
- Key risks include continued component shortages and cost inflation, reliance on a major defense customer (20% of FY2021 revenue), government-budget and order timing, China operations and trade exposure, lithium-battery safety, oil-and-gas cyclicality, foreign exchange, and integration of Excell. The company reports no off-balance-sheet arrangements and no currently known legal matter expected to materially affect results.
- FY2020 included a $1.593 million litigation settlement gain; FY2021 included $0.354 million of direct Excell acquisition costs and a $0.121 million inventory fair-value step-up charge. The 2021 effective tax rate was unusual because of the geographic mix of earnings; management said U.S. deferred tax assets were more likely than not to be realized.
Important facts for investors to verify
- Whether the elevated backlog converts to shipments and cash on schedule, given continuing supply constraints and customer order timing.
- Actual orders, testing, production readiness, and delivery timing under the large Army and DLA contract ceilings; contract ceilings do not assure purchases.
- Excell integration, realized synergies, acquisition accounting estimates, and the company’s ability to service and repay the increased debt.
- Progress in recovering gross margins and operating cash flow, and the effects of higher component costs and planned R&D investment.
- Customer concentration and exposure to defense spending, medical demand normalization, and oil-and-gas market volatility.
The independent auditor issued an unqualified opinion on the financial statements and found internal control over financial reporting effective as of year-end; Excell was excluded from the internal-control assessment because it had just been acquired.