Yahoo Finance Ultralife Corporation (NASDAQ:ULBI) Q1 2024 Earnings Call Transcript
Ultralife Corporation (NASDAQ:ULBI) Q1 2024 Earnings Call Transcript April 27, 2024
Ultralife Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the Ultralife Corporation First Quarter Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jody Burfening, Managing Director of LHA Investor Relations. Please go ahead.
Jody Burfening: Thank you, Antoine, and good morning, everyone, and thank you for joining us this morning for Ultralife Corporation's earnings conference call for the first quarter of fiscal 2024. With us on today's call are Mike Manna, Ultralife's President and CEO, and Phil Fain, Ultralife's Chief Financial Officer. The earnings press release was issued earlier this morning, and if anyone has not yet received a copy, I invite you to visit the company's website, www.ultralifecorp.com, where you'll find the release under Investor News in the Investor Relations section. Before I turn the call over to management, I would like to remind everyone that some statements made during this conference call contain forward-looking statements based on current expectations.
Actual results could differ materially from those projected as a result of various risks and uncertainties. The 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 US and foreign military spending, acceptance of new products on a global basis, and disruptions or delays in our supply of raw materials and components due to business conditions, global conflicts, weather, or other factors not under the company's control. 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. The company undertakes no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances.
Further information on these and other factors that could affect Ultralife'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. 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. With that, I would now like to turn the call over to Mike. Good morning, Mike.
Mike Manna: Thanks, Jody. Good morning, everyone. Welcome to our call on Ultralife's Q1 operating results. Earlier this morning, we reported Q1 sales of $42 million and operating income of $4.1 million, the second consecutive quarter of $42 million or more in sales, delivering $0.18 EPS for the first quarter, following the reported $0.17 EPS in the fourth quarter. I am extremely proud of the team's efforts across the business in Q1 and the positive impact realized from our top priority and objective this year, which is gross margin improvement. The sequential Q1 improvement to 27.4% accelerates our incremental cash flow to further invest in organic growth initiatives and to pay down our acquisition debt. I will turn it over to Phil to talk through the detailed numbers.
Phil Fain: Thank you, Mike, and good morning, everyone. Earlier this morning, we released our first quarter results for the quarter ended March 31, 2024. We also filed our Form 10-Q with the SEC and updated our investor presentation in the Investor Relations section of our website, which now includes a summary and status of our transformational new products. Consolidated revenues totaled $41.9 million, compared to $31.9 million for the first quarter of 2023, an increase of 31.4%. Government defense sales increased 83.4%, and commercial sales increased 8.6%. As a reminder, our results for last year's first quarter were negatively impacted by the January cyberattack. Revenues from our Battery & Energy Products segment were $35 million, compared to $28.5 million last year, an increase of 22.9%.
This growth was driven by very strong performance in our sales to government defense and medical markets, which increased 73.6% and 54.7% respectively. These increases were partially offset by a decline of 13.9% in oil and gas market sales. The sales split between commercial and government defense for our battery business was 69%-31% compared to 78%-22% reported for the 2023 full year, and the domestic to international split was 56%-44% compared to 49%-51% for the 2023 full year, demonstrating heightened domestic demand for our core products and the continued success of our global revenue diversification strategy. Revenues from our Communications Systems segment of $6.9 million were double the $3.4 million we reported last year, primarily attributable to shipments of EL8000 server cases to a large multinational information technology company, integrated systems of amplifiers and radio vehicle mounts to a major international defense contractor under an ongoing allied country government defense modernization program, and power systems to a US-based global prime.
On a consolidated basis, the commercial to government defense sales split was 58%-42% versus 64%-36% reported for the 2023 full year. Our total backlog exiting the first quarter was $97.4 million and remains diverse in nature across our commercial and government defense customer base. The replenishment rate remains high and the backlog represents almost 60% of TTM sales. Our consolidated gross profit was $11.5 million, up 54.3% over the 2023 period, far eclipsing the 31.4% increase in revenues. As a percentage of total revenues, consolidated gross margin was 27.4% versus 23.3% for last year's first quarter, a 410 basis point improvement, and increased 180 basis points sequentially over the fourth quarter. Gross profit for our Battery & Energy Products business was $9 million compared to $6.5 million last year, an increase of 38%.
Gross margin was 25.7%, an increase of 280 basis points over 22.9% reported for last year's first quarter, and an increase of 50 basis points on a quarterly sequential basis. The year-over-year and sequential increases were primarily due to higher cost absorption and more efficiencies resulting from our concerted effort to level out production more evenly across the 2024 quarter, as well as improved price realization. For our Communications Systems segment, gross profit was $2.5 million compared to $0.9 million for the year-earlier period. Gross margin was 35.8% compared to 26.8% last year, primarily due to higher factory volume and favorable sales product mix. On a quarterly sequential basis, gross margin for the segment improved 860 basis points.
Operating expenses were $7.4 million, the same as the year-earlier quarter. As a percentage of revenues, operating expenses were 17.7% compared to 23.2% for last year's first quarter, a 550 basis point improvement, reflecting pure sales leverage. The combined leverage of our 410 basis point gross margin improvement and our 550 basis point reduction in operating expenses to sales ratio resulted in a 9.7% operating margin. On an absolute dollar basis, operating profit improved to $4 million over the 2023 first quarter to $4.1 million, the highest level achieved in at least the last 15 years. The business interruption insurance claim pertaining to our Q1 2023 cyberattack still remains in review and is not included in our financial results. Our tax provision for the fourth quarter was $0.7 million versus $0.1 million benefit reported for the 2023 quarter computed on a GAAP basis.
Including the impact of interest expense to help finance the Excell acquisition and foreign currency gains and losses, net income was $2.9 million or $0.18 per share on a GAAP fully diluted basis. This compares to a net loss of $0.3 million or a loss of $0.2 per share for the 2023 quarter. Excluding the provision for non-cash US taxes expected to be fully offset by our net operating loss carry-forwards and other tax credits, adjusted fully diluted EPS was $0.21 per share for the first quarter of 2024 compared to a loss of $0.05 for the 2023 period. Adjusted EBITDA, defined as EBITDA including non-cash stock-based compensation expense was $5.2 million or 12.5% of sales compared to $1.2 million or 3.6% for the prior year quarter. On a TTM basis, adjusted EBITDA is $19.8 million or 11.7% of sales.
Turning to our balance sheet, we ended the first quarter with working capital of $70.9 million in a current ratio of 4% compared to $66.5 million and 3.8% for 2023 year-end. With the strengthening of our balance sheet, we are positioned to accelerate the paydown of our debt, thereby reducing the costly interest expense, which represents almost $0.12 per share on a TTM basis. We reduced our debt by just over $0.5 million in the first quarter with the expectation to pick up the pace in subsequent quarters. Going forward, our backlog, diversified end markets, growth initiatives, and ongoing actions to improve our gross margins and further strengthen our balance sheet, position us well to further the leverage of our business model. I will now turn it back to Mike.
Mike Manna: Thank you, Phil, for the detailed review of the Q1 results. As I mentioned in the last call, we refined our 2024 priorities exiting the year with the following being key to continued success. First, material cost depletion, we need to keep driving material cost initiatives, working with key suppliers to produce realized cost savings. We have hired experienced supply chain resources over the past six months in Newark, Virginia Beach, and Vancouver locations to work on vendor rationalization and consolidation, critical part dual sourcing, low-cost region sourcing, and streamlining logistics spend across the enterprise. Secondly, lean productivity. Continue to reduce waste and inefficiencies in all of our processes, both on production lines with line balancing projects and automation initiatives, and throughout the support and back office functions, including additional systems integration activities.
And finally, sales funnel improvement. We have a larger and increasing pipeline of new products with a healthy funnel of sales opportunities, which most have yet to close, which is required to continue to drive future growth. As the world becomes more portable in critical applications, it is important that Ultralife brand products lead the way. On the direct labor and materials side, we have seen conditions improve over the last 12 months, and our S&OP process has kept us mostly within component lead times and allowed us to deliver strong revenue over recent quarters. We continue to refine the S&OP process and expect this to further level production demand, in turn allowing more efficient utilization of our direct precious resources as we continue to grow the business.
Next, I'll give updates on the organic growth projects and new development underway for the businesses, which are key to future sales and market expansion. On the communication system side, first I'll review our EL8000 case systems, which is a system developed with our strategic partner that allows high-end computing power to be used in difficult environments on the edge in industrial 5G and AI applications, truly bringing server-level computational power to the point of use. For the EL8000 project, we shipped $1.6 million of revenue in Q1, the highest shipment quarter-to-date, and a key to further diversification in the comm systems business. Next, with the wide-range DC power supply available later this year, we expect vehicular and remote DC applications to become part of the EL8000 product line in the future, as this product line grows in defense and commercial applications.
Secondly, we received initial orders for a new project win for radio power in an airborne application. We expect this program to ramp over the next year and continue for at least five years. Finally, we have several projects under way in next-gen amplification products that target both domestic and international customers. I hope to have more detailed updates in future calls. On the Battery & Energy side of the business, we are excited about the opportunity funnel growth across the variety of new and existing products, and are optimistic we'll see incremental orders this year. As previously mentioned, we have production equipment in place for our thin cell to support customers in the medical wearable space and several applications in item tracking.
The sales funnel is strong, with multiple projects in the qualification phase, primarily in medical applications. The 123A product line, currently supporting IoT in the illumination markets, has seen opportunity funnel growth in medical pack assemblies, with several quotes provided underway for multi-cell packs, which is a key initiative for this product line. Our improved final chloride product line, targeting monitoring and telemetry application, continues qualification and field testing with several customers. These qualification cycles are extremely lengthy. For instance, we have one customer that has been testing the product for over one year. With multiple opportunities in qualification, we anticipate initial product production orders later this year.
Our development work on the conformal wearable battery continues. We are working on completing the rest of the validation testing to enter US government first article testing, which is currently scheduled to start later this year. Meanwhile, as I mentioned in the last call, we are shipping samples to other prospective applications and customers to expand sales channels outside the US military to international markets. Sales funnel and commercial opportunity pipeline growth is key for 2024 to keep our strong organic growth trajectory going, as we have yet to fully realize the return from all our new product investments made over the last three to five years. In closing, the team is energized and focused on their key objectives of gross margin improvement and sales funnel opportunity growth.
The initiative started last year of delivering promising early results, with initial positive gross margin improvements and a healthy backlog position, we expect more benefit across the portfolio as we progress. As momentum continues, I look forward to further organic growth investment, paying down our acquisition debt, and beginning our next accretive M&A search. Thanks, everyone. That concludes the prepared remarks for today. Now we'll go back to the operator for questions.
Operator: [Operator Instructions] Our first question comes from Josh Sullivan from The Benchmark Company. Please go ahead.
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