Ultralife Corporation (ULBI) — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited consolidated results; dollar amounts below are in millions except per-share data.
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.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $21.761 | $24.362 | $74.504 | $78.736 |
| Gross profit / margin | $5.108 / 23.5% | $6.511 / 26.7% | $19.353 / 26.0% | $21.808 / 27.7% |
| Operating income (loss) | $(0.779) | $0.707 | $1.264 | $4.486 |
| Net income (loss) attributable to Ultralife | $(0.585) | $0.407 | $0.897 | $3.124 |
| Diluted EPS | $(0.04) | $0.03 | $0.06 | $0.19 |
| Adjusted EBITDA (non-GAAP) | $0.283 | $1.656 | $4.481 | $7.485 |
Q3 revenue declined 10.7% year over year; nine-month revenue declined 5.4%. In Q3, Battery & Energy Products revenue was $20.008 million, down 8.3%, and Communications Systems revenue was $1.753 million, down 30.9%. For the nine months, the segments generated $64.994 million and $9.510 million, respectively.
For the nine months, operating cash flow was $8.462 million, versus $21.491 million in 2020. Capital expenditures were $2.324 million; financing activities used $0.936 million. Cash increased $5.200 million to $15.853 million at September 30, including $0.087 million of restricted cash. Current assets were $64.538 million and current liabilities $16.688 million.
At September 30, total debt principal was $0.288 million, all under the term loan; there were no revolver borrowings. The revolving facility provides up to $30 million, subject to borrowing-base limits, and expires May 31, 2022. The company reported compliance with its credit covenants. Total liabilities were $18.266 million and stockholders’ equity was $118.546 million.
Material changes and management commentary
- Q3 gross margin fell 320 basis points, primarily due to unfavorable product mix and lower factory volumes. Nine-month gross margin declined 170 basis points for similar reasons.
- Q3 commercial sales rose 5.1%, but government/defense sales fell 39.7%. The prior-year period included a completed U.S. Department of Defense battery order; 2020 Communications Systems revenue also benefited from Army vehicle amplifier-adaptor deliveries.
- Management estimated that supplier lead-time increases and COVID-related logistics delayed about $4.1 million of Q3 shipments, reducing estimated Q3 operating income by approximately $1.3 million and adjusted EPS by about $0.08. For the first nine months, estimated revenue impact was $7.6 million: $4.6 million in Battery & Energy Products and $3.0 million in Communications Systems.
- R&D expense increased 17.9% year over year for the first nine months, reflecting engineering investment and development work, including the Conformal Wear Battery IDIQ contract. Management cited new products, customer relationships and the balance sheet as supports for its long-term strategy.
- Management expects positive operating cash flow and revolver availability to meet general funding needs for the foreseeable future. No specific revenue or earnings guidance was provided. The company also has an effective shelf registration that permits offerings of up to $100 million; no offering is reported here.
Risks, contingencies and unusual items
The filing highlights risks including COVID-19 and supply-chain disruption, dependence on key customers, changes in government and defense spending, raw-material availability, foreign currency exposure, product safety and warranty costs, and market demand. The company reported approximately $1.1 million of production machinery and equipment purchase commitments. It stated that known legal matters were not expected to have a material adverse effect, while noting the inherent uncertainty of legal proceedings. Domestic tax loss carryforwards were considered more likely than not to be utilized; approximately $11 million of U.K. loss carryforwards remained subject to a valuation allowance.
Q3 GAAP results included a $0.175 million income tax benefit, including a $0.218 million deferred tax benefit. Management’s adjusted EPS and adjusted EBITDA are non-GAAP measures and should be considered alongside, not in place of, GAAP results.
Investor verification points
- Whether delayed Q3 shipments were subsequently delivered, and whether supplier and logistics constraints continued to affect revenue and margins.
- How demand evolves in medical batteries, oil and gas, new ER/thin-cell products, and government/defense markets after the prior-year order comparisons.
- Whether lower gross margins and reduced factory volumes persist, especially in Communications Systems.
- Cash conversion and working-capital trends, given lower operating cash flow versus 2020 and the contribution from receivables reductions.
- Revolver availability and covenant compliance as the facility approaches its May 2022 maturity, alongside the planned machinery commitments and any use of the shelf registration.