Ultralife Company (NASDAQ:ULBI) Q1 2023 Earnings Convention Name April 27, 2023 8:30 AM ET
Jody Burfening – IR
Michael Manna – President and CEO
Philip Fain – CFO
Convention Name Individuals
Good day, and thanks for standing by. Welcome to the Ultralife Company First Quarter 2023 Outcomes Convention Name. At the moment, all individuals are in a listen-only mode. After the audio system’ presentation, there would be the question-and-answer session. [Operator Instructions]. Please be suggested that immediately’s convention is being recorded.
I might now like handy the convention over to your speaker, Jody Burfening. Please go forward, Jody.
Thanks, Kathy, and good morning, everybody. And thanks for becoming a member of us this morning for Ultralife Company’s earnings convention name for the primary quarter of fiscal 2023. With us on immediately’s name are: Mike Manna, Ultralife’s President and CEO; and Phil Fain, Ultralife’s Chief Monetary Officer. The earnings press launch was issued earlier this morning and if anybody has not but acquired a duplicate, I invite you to go to the corporate’s web site, www.ultralifecorp.com, the place you may discover the discharge underneath Investor Information within the Investor Relations part.
Earlier than turning the decision over to administration, I want to remind everybody that some statements made throughout this convention name comprise forward-looking statements primarily based on present expectations. Precise outcomes might differ materially from these projected because of varied dangers and uncertainties. The potential dangers and uncertainties that might trigger precise outcomes to vary materially embrace the impression of COVID-19 associated supply-chain disruptions, potential reductions in income from key clients, acceptance of latest merchandise on a world foundation and unsure international financial situations. The corporate cautions buyers to not place undue reliance on forward-looking statements, which mirror the corporate’s evaluation solely as of immediately’s date. The corporate undertakes no obligation to publicly replace forward-looking statements to mirror subsequent occasions or circumstances.
Additional data on these elements and different elements that might have an effect on Ultralife’s monetary outcomes is included within the firm’s filings with the Securities and Trade Fee, together with the newest annual report on Kind 10-Ok. As well as, on immediately’s name, administration will discuss with sure non-GAAP monetary measures that administration considers to be helpful metrics and differ from GAAP. These non-GAAP measures needs to be thought-about supplemental to corresponding GAAP figures.
With that, I might now like to show the decision over to Mike. Good morning, Mike?
Good morning. Thanks for becoming a member of the decision on Ultralife’s Q1 2023 working outcomes. Given a cyber assault at two of our services initially of the quarter, I am extraordinarily happy with the Q1 outcomes and the efforts of our inner groups. We managed to enhance gross margin over This fall as our groups diligently work via the cyber assault, which consumes time and sources to evaluate, restore, validate methods then resume enterprise and manufacturing operations over many weeks.
Consequently, we skilled operational inefficiencies in Q1 and couldn’t take full benefit of our backlog place, whereas experiencing surging demand from our clients, particularly within the medical and protection markets, reflecting, largely, the adoption of latest merchandise and the strengthening of our buyer relationships. I thank our groups and affected person clients for working via the manufacturing validation and restart we skilled in Q1, it was an important workforce effort.
I’ll now flip it over to Phil to speak via the Q1 numbers.
Thanks, Mike, and good morning, everybody. Earlier this morning, we launched our first quarter outcomes for the quarter ended March 31, 2023. We additionally up to date our investor presentation, which yow will discover within the Investor Relations part of our web site, and count on to file our Kind 10-Q with the SEC within the subsequent few days.
Earlier than beginning my assessment, I’ll present just a few follow-up feedback on the ransomware assault that we disclosed throughout our fourth quarter investor name on March 2. The assault at our Newark and Virginia Seaside places, which occurred on January 25, impacted our capacity to course of orders, ship merchandise and successfully handle our S&OP course of over a a number of week interval at our Newark facility, and through the the rest of the primary quarter at our Virginia Seaside facility.
As beforehand disclosed, we now have a cyber insurance coverage coverage in place and we’re persevering with to work on the declare, which covers each the direct value of partaking cybersecurity consultants to assist with the information restoration, methods restoration, system safety augmentation and the entire ensuing regulatory reporting, in addition to the enterprise interruption impression.
I stay up for sharing with you the main points of our declare as soon as the settlement has been reached and funded, after which we can report on the settlement quantity in our monetary outcomes. For the primary quarter, the one quantity acknowledged is the $100,000 insurance coverage coverage deductible, which was reported in working bills. To reiterate, primarily based on the restoration of our methods, assessment of the recordsdata affected in addition to the corporate’s immediate response to an evaluation of the incident, no ransom or different quantity has been or will likely be paid.
Now I am going to take you thru our first quarter outcomes. Consolidated revenues for the 2023 first quarter totaled $31.9 million, in comparison with $30.4 million for the primary quarter of 2022, a rise of 5.1%. Authorities protection gross sales elevated 24.7%, whereas business gross sales decreased 1.7% in comparison with the yr ancient times, with each sectors impacted by the cybersecurity assault.
Our whole backlog exiting the primary quarter remained excessive at $108.1 million, with $96.1 million resulting from ship over the remaining 9 months of 2023, representing a 30.2% improve over the comparable quantity of $73.8 million for the yr ancient times.
Revenues from our Battery & Vitality Merchandise phase have been $28.5 million in comparison with $29.2 million final yr, a lower of two.3%. The cybersecurity assault primarily impacted our medical and authorities protection companies, which declined 8.5% and 4.7%, respectively, for this phase. These declines have been partially offset by increased oil and gasoline market gross sales, which elevated 21.3% year-over-year.
The backlog for our Battery & Vitality Merchandise enterprise of $87.9 million was just about similar to the backlog of $88.6 million exiting the fourth quarter of 2022, which was the best in our historical past for this phase. The gross sales cut up between business and authorities protection for our battery enterprise was 78/22, similar to that reported for the 2022 yr and the home to worldwide cut up was 48/52, in comparison with 49/51 for the 2022 yr, accentuating the continued success of our international income diversification technique.
Revenues from our Communications Techniques phase have been $3.4 million in comparison with $1.2 million final yr, a rise of 181.8% primarily regarding shipments underneath a automobile amplifier adapter order with a world protection contractor acquired in mid-2022. That was tempered by the impression of the cybersecurity assault. The backlog for our Communications Techniques enterprise of $20.2 million was down 9.8% from the backlog of $22.4 million exiting the fourth quarter of 2022.
On a consolidated foundation, the business to authorities protection gross sales cut up was 70/30, just about similar to the 71/29 reported for the 2022 full yr. Our consolidated gross revenue was $7.4 million for the 2023 first quarter, up 6.9% over the 2022 interval. As a share of whole revenues, consolidated gross margin was 23.3% versus 22.9% for final yr’s first quarter.
Gross revenue for our Battery & Vitality Merchandise enterprise was $6.5 million in comparison with $6.7 million, final yr. Gross margin was 22.9%, a sequential improve of 130 foundation factors over the 21.6% reported within the fourth quarter and a lower of 20 foundation factors and 23.1% reported final yr. The sequential enchancment was primarily resulting from our nearer matching of buyer value will increase with the continued value inflation of sure uncooked supplies and key elements, together with varied digital elements, PC boards and chipsets.
For our Communications Techniques phase, gross revenue was $0.9 million in comparison with $0.2 million for the yr ancient times. Gross margin was 26.8% in comparison with 19.4% final yr, reflecting increased manufacturing facility throughput resulting in increased value absorption tempered by the inefficiencies related to this cybersecurity assault. Working bills have been $7.4 million in comparison with $7.3 million final yr, a rise of two.2%, solely attributable to the popularity of the $100,000 cybersecurity insurance coverage deductible. As a share of revenues, working bills have been 23.2% in comparison with 23.9% for the final yr’s first quarter, a 70 foundation level enchancment reflecting gross sales leverage.
Working revenue was breakeven, inclusive of the $0.1 million one-time insurance coverage deductible, in comparison with an working lack of $0.3 million final yr. Our tax profit for the fourth quarter was $0.1 million versus $0.3 million reported for the 2022 quarter, computed on a GAAP foundation.
Together with the impression of curiosity expense to assist finance the Excell acquisition, and overseas forex losses related to the strengthening of pound sterling to the U.S. greenback, web loss was $0.3 million or $0.02 per share. This compares to a web lack of $0.2 million or $0.01 per share for the 2022 quarter. Adjusted EBITDA, outlined as EBITDA, together with noncash stock-based compensation expense was $1.2 million or 3.6% of gross sales for the 2023 quarter, in comparison with $1.1 million or 3.6% for the prior yr quarter.
Turning to our steadiness sheet, reflecting the impacts of the cybersecurity assault in addition to actions to proactively affect our place to service our substantial backlog, stock elevated by $6.1 million or 14.9% over the fourth quarter with $5.1 million or 83.1% of the full improve occurring in our Newark and Virginia Seaside places.
We ended the 2023 first quarter with working capital of $52.5 million and a present ratio of two.8, in comparison with 50.1 and a couple of.7 for the 2022 fourth quarter. Debt to capital at quarter finish was barely beneath 0.20%. Going ahead, with our backlog, diversified finish markets, progress initiatives, ongoing actions to enhance our gross margins and with the cybersecurity assault for probably the most half in our rearview mirror, we stay devoted to realizing the leverage potential of our enterprise mannequin.
I’ll now flip it again to Mike.
Thanks, Phil, for the detailed breakdown on the Q1 outcomes. For 2023, as I defined within the final name, we’re targeted on executing our backlog and bettering the gross margin of the enterprise. We did see enchancment in gross margin in Q1 even with the inefficiencies because of the cyber occasion, which is encouraging, however we now have extra to perform. The cyber occasion impression delayed a few of the enchancment initiatives we now have underway, corresponding to printed circuit board redesigns and Lean and Kaizen occasions as our groups have been targeted on the restoration efforts.
Talking briefly to produce chain, we’re seeing encouraging indicators of element lead time discount and improved half availability via 2023 to date, though each companies nonetheless have provide points with sure specialty components that impression manufacturing. Direct labor in our places and with our provide chain stay tight all through Q1. Our high initiatives are nonetheless in progress being, first, persevering with value realization actions.
We skilled some elevated profit on gross margin in Q1 and proceed to work on changes to enhance and stabilize our gross margin efficiency for each companies. Communication Techniques particularly has a backlog of contracts that have been priced in some instances over a yr earlier, which resulted in margin strain from pricing, then award, to precise supply. We should always work via the sooner backlog within the subsequent few quarters, which can transfer us previous these contracts and enhance the gross margin.
Second, we proceed our journey of extending the time horizon of our gross sales and operations planning course of with each clients and suppliers, bettering our end-to-end forecasting. We now have employed an operations lead in our Newark facility and are at present recruiting a provide chain chief. This course of will cut back the extra charges for expedited components and logistics and cut back manufacturing inefficiencies, each internally to Ultralife and inside our provide chain.
And lastly, we proceed to enhance our means of launching new merchandise and transitioning to increased quantity manufacturing, aligning sources to give attention to lean ideas and design for manufacturing.
Subsequent, I’ll give some updates on our natural progress technique, which is new product growth and the key focus initiatives underway. First, on the Battery & Vitality facet of the enterprise, we proceed to develop and enhance merchandise for our branded common gross sales and for our vital OEM clients.
Our Skinny Cell product line continues to realize momentum within the quickly rising medical wearables and product monitoring market areas. We now have bought extra CapEx gear to assist forecasted demand by our clients. This gear ought to begin coming on-line in Q3 of this yr.
On the UB123A product line serving the IoT market house, we proceed cadence manufacturing shipments of this venture and count on volumes to ramp this yr. The XR123A, our Carbon Monofluoride mix model of this cell, which affords 20% to 30% extra power in the identical measurement is at present going via UL security certification, which is anticipated to finish in early Q3. For each 123A cell variants, we proceed to work on a number of alternatives for cell gross sales, however finally imagine battery pack assemblies will likely be a crucial piece of this product line the place customized options can provide worth and stronger buyer relationships.
We now have a number of companions evaluating our improved Thionyl Chloride product line, concentrating on monitoring and telemetry purposes the place this expertise can energy objects throughout excessive temperature ranges for as much as 20 years. We now have a number of business negotiations ongoing, and we’ll have a number of new Thionyl merchandise launching in 2023, the primary of which is a 19Ah D cell concentrating on utility monitoring purposes. This cell is sampling now and will likely be accessible in manufacturing within the again half of 2023.
The event of the conformal wearable battery, which is used to energy superior dismounted soldier gear continues to make progress. We at present count on to start out first article testing of the battery in Q3 of 2023. This being an indefinite amount, indefinite supply contract with uncommitted volumes, we proceed to steadiness inner sources for this venture with different identified revenue-generating and value discount initiatives.
Secondly, on the Communications Techniques facet of the enterprise, we’re working via branding and beauty objects for our EL8000 server case and energy system, a robust signal that we’re near preliminary business orders, this may assist diversify and add scale to the enterprise. In the meantime, we proceed to work on superior amplification and energy merchandise with a number of companions to assist air, floor and sea communications, primarily army in nature.
Lastly, on progress, we proceed to develop methods and relationships on learn how to finest place us to benefit from electrification and 5G market areas, searching for area of interest purposes and investments that can convey us aggressive benefit, leveraging our cell design experience and energy system capabilities. We’re in discussions with a number of companions to collaborate on superior cell prototypes in 2023.
In closing, after some frustration in Q1 with the cyber occasion and an important workforce effort to get again on monitor, we’re laser targeted on our aim of returning to worthwhile progress, which is vital to paying down our acquisition debt. Execution continues the principle precedence and mandate for each companies with communication methods rising scale to realize profitability. Battery & Vitality changing on a number of progress initiatives, whereas driving gross margin enhancements.
Thanks, everybody, for the eye. That concludes the ready remarks. Again to the operator for questions.
Thanks. At the moment, we’ll conduct a question-and-answer session. [Operator Instructions].
If there are not any questions, I might wish to now flip the decision again to Mike for closing remarks.
Okay. Thanks, Kathy. Nicely thanks, everybody, for listening to immediately’s name. We stay up for speaking with you subsequent time on the Q2 earnings name. Have an important day. Bye, everybody.
Thanks in your participation in immediately’s name. This does conclude this system, and you could now disconnect.