Ultralife Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited results are compared with Q1 2021; balance-sheet figures are compared with December 31, 2021. Amounts are in $ millions unless stated otherwise.
Business context
Ultralife designs and manufactures battery and energy products and communications systems for commercial, government, and defense customers. It reports two segments: Battery & Energy Products and Communications Systems. Q1 2022 results include Excell Battery Group, acquired in December 2021; Excell contributed $6.436 million of revenue and $0.394 million of net income during the quarter.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $30.373 | $25.973 |
| Gross profit / margin | $6.958 / 22.9% | $6.978 / 26.9% |
| Operating income (loss) | $(0.295) | $0.952 |
| Net income (loss) attributable to Ultralife | $(0.168) | $0.671 |
| Diluted earnings (loss) per share | $(0.01) | $0.04 |
| Adjusted EBITDA (non-GAAP) | $1.103 | $2.012 |
| Cash from (used in) operating activities | $(3.222) | $3.903 |
| Capital expenditures | $0.371 | $0.489 |
Revenue increased 16.9%, reflecting Excell and stronger commercial battery sales, partly offset by weaker government/defense and Communications Systems sales. Adjusted EBITDA margin was 3.6%, versus 7.8%. Gross margin fell 400 basis points, with management citing lower Communications Systems factory volume, higher component and logistics costs, and costs of transitioning new products to higher-volume production.
- Segments: Battery & Energy Products revenue rose 31.8% to $29.150 million; segment contribution was $6.721 million. Communications Systems revenue declined 68.3% to $1.223 million; contribution fell to $0.237 million from $1.542 million.
- Revenue mix: Commercial revenue increased 62.1% overall, including Excell; government/defense revenue declined 38.8%. Excluding Excell, commercial revenue rose 17.3%, while government/defense revenue was down 38.8%.
- Costs and taxes: Operating expenses increased 20.4% to $7.253 million, including $1.058 million from Excell. The company recorded an income-tax benefit of $0.251 million; the filing reports an effective tax rate of (60.9%).
Financial position and liquidity
- Cash, including restricted cash of $0.082 million, was $6.050 million, down from $8.413 million at year-end. Working capital was $49.127 million, based on current assets of $69.142 million and current liabilities of $20.015 million.
- Debt principal outstanding was $21.667 million: $9.667 million under the term loan and $12.430 million under the revolving facility, partly offset by scheduled term-loan payments during the quarter. The company drew $1.450 million on the revolver during Q1.
- Operating cash use was primarily associated with working-capital investment, including $3.274 million used to build inventory for customer backlog amid supply constraints. Cash used for working capital was $3.999 million.
- The revolving facility is $30 million, subject to borrowing-base limits, and matures May 30, 2025; the term loan matures January 1, 2027. Ultralife reported compliance with all credit covenants at March 31, 2022.
Outlook, risks, and unusual items
Management said it expects positive operating cash flow and available revolving-credit capacity to meet general funding needs for the foreseeable future. It maintained that long-term profitable growth drivers and expectations remain sound, while continuing product development and production transitions. The filing provides no specific revenue or earnings guidance.
- COVID-19-related disruption, including shutdowns at the Shenzhen facility in Q1, and broader supply-chain delays affected schedules and shipments. Management cited uncertainty around component availability and cost, customer demand, and future operating effects.
- Approximately $1.6 million of Communications Systems sales were delayed to future periods by supply-chain disruption and customer order timing. Management also noted that a large international defense contractor order received in Q1 2021 was not expected to recur until later in 2022.
- Ultralife is investing in development and test resources for a U.S. Army Conformal Wear Battery IDIQ contract with a three-year base award ceiling of $168 million and up to $350 million in additional options; these are potential contract amounts, not guaranteed sales.
- Other identified risks include reliance on key customers, government spending and approvals, raw-material availability, oil-price exposure, foreign-exchange movements, cybersecurity, product safety and warranty costs, and possible goodwill or intangible-asset impairment.
- The company disclosed routine legal proceedings and claims, but said it was not aware of matters expected to have a material adverse effect. It had $0.953 million of production-equipment purchase commitments.
- Excell acquisition accounting included a $0.055 million inventory fair-value step-up expense in Q1 and a $0.070 million one-time acquisition cost within SG&A. The filing also recorded a $0.030 million reduction to acquisition goodwill from a measurement-period adjustment.
Key facts for investors to verify
- Whether delayed Communications Systems orders and government/defense demand recover, and when.
- Whether component, logistics, and production-transition costs moderate or are offset by customer pricing.
- Whether inventory and receivables convert to cash as expected, given Q1 operating cash use and increased working capital.
- Revolver availability under borrowing-base limits, debt service, and compliance with leverage covenants.
- Excell’s continuing contribution to revenue, margins, and cash flow, including final acquisition valuation effects.
Management concluded disclosure controls and procedures were effective at quarter-end and reported no material change in internal control over financial reporting during the quarter.