Ultralife Corporation — Q1 2021 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2021, compared with Q1 2020. Ultralife designs and manufactures battery and energy products and communications systems for commercial, government, and defense customers. Unless stated otherwise, dollar amounts below are in thousands.
Financial results
- Revenue: $25,973, up 0.6% from $25,814. Battery & Energy Products revenue rose 6.5% to $22,111; Communications Systems revenue fell 23.6% to $3,862.
- Profit and margins: Gross profit was $6,978 versus $7,334; gross margin declined to 26.9% from 28.4%. Operating income fell 35.9% to $952, or 3.7% of revenue, from $1,485, or 5.7%. Net income attributable to Ultralife was $671 ($0.04 per diluted share), versus $1,059 ($0.07).
- Non-GAAP measures: Adjusted EBITDA was $2,012 (7.8% of revenue), down from $2,522 (9.8%). Adjusted diluted EPS was $0.05 versus $0.08; the company defines this measure by excluding deferred tax provision.
- Cash flow: Operating cash flow was $3,903, compared with a use of $365 in Q1 2020. Investing activities used $489, principally for capital expenditures; financing activities used $420. Cash increased $3,009 to $13,662, including $88 of restricted cash.
- Debt and liquidity: Term-loan principal outstanding was $1,081; there were no revolving-credit borrowings. The company reported compliance with credit covenants. Current assets were $63,520 and current liabilities $16,635 at March 31, 2021.
- Other metrics: Operating expenses increased 3.0% to $6,026. The effective tax rate was 24.2%, versus 22.9%; the $217 tax provision included $168 of deferred tax provision.
Material changes versus Q1 2020
- Battery & Energy Products sales increased, supported by medical and government/defense demand. Excluding oil and gas sales, segment revenue increased 19.4%; medical sales rose 32.2% and government/defense sales rose 30.3%. Oil and gas battery sales declined 30.0%.
- Communications Systems sales declined after higher Q1 2020 shipments of mounted power amplifiers for U.S. Army initiatives; the related delivery orders were completed in Q2 2020.
- Lower consolidated gross margin reflected product mix, costs of transitioning new products to higher-volume production, and higher inbound freight costs. Operating expenses rose as the company invested in engineering and sales resources.
- Q1 2021 operating cash flow included $1,593 of net proceeds from a class-action lawsuit award; cash generation also benefited from working-capital movements. Q1 2020 operating cash flow was negative.
Outlook, commentary, and risks
- Management estimated COVID-19 reduced Q1 2021 sales by approximately $2,000, operating income by $900, net income by $700, and diluted EPS by $0.04. Medical battery demand remained strong, but was offset by weakness in oil and gas and international industrial markets, order delays, and supply-chain and logistics disruptions.
- Management expects positive operating cash flow and available revolving-credit capacity to meet general funding needs for the foreseeable future. No specific revenue or earnings guidance is provided in the filing.
- The company filed a shelf registration statement allowing potential offerings of up to $100 million, subject to required offering documents. Proceeds, if raised, may be used for general corporate purposes, including acquisitions, capital expenditures, and product development.
- Key disclosed risks include COVID-19 effects, dependence on key customers, demand and government defense spending, supply interruptions, China operations, foreign exchange, product warranty and battery safety exposures, and the ability to commercialize new products. The company also disclosed approximately $919 of commitments for production machinery and equipment. Management said it was not aware of legal matters expected to have a material adverse effect, while noting litigation outcomes carry uncertainty.
Important facts for investors to verify
- Whether medical and defense demand can offset continued weakness in oil and gas, industrial markets, and Communications Systems.
- Whether gross margins recover as new products move to higher-volume production and freight costs change.
- How much of the reported operating cash generation is sustainable apart from the $1,593 litigation proceeds and working-capital timing.
- Whether management’s expectations for positive operating cash flow and adequate credit availability remain valid; monitor debt repayment and covenant compliance.
- The actual financial impact and duration of COVID-19, supply-chain disruption, customer delays, and the company’s planned investments or any securities offering.