Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ultralife Corp (ULBI, Financial) reported Q2 sales of $43 million, marking the third consecutive quarter of $42 million or more in sales.
- Battery & Energy Product sales increased by 8.3% over Q1, reaching the highest revenue level ever for the segment.
- Gross margin improved to 26.9% from 24.8% a year ago, driven by material cost deflation, lean productivity, and sales funnel improvement initiatives.
- The company paid down its acquisition debt by over 52%, significantly decreasing interest expenses and allowing for future accretive M&A.
- Ultralife Corp (ULBI) was included in the Russell 2000 Index, enhancing its profile in the investment community.
Negative Points
- Revenues from the communications systems segment declined by 28.7% compared to the previous year, primarily due to delayed shipments.
- Operating expenses increased by 10.4% from the previous year, impacting overall profitability.
- Net income decreased to $3 million, or $0.18 per share, compared to $3.3 million, or $0.21 per share, in the previous year.
- The oil and gas market sales declined by 10.9%, partially offsetting gains in other segments.
- The company is still waiting to receive its Employee Retention Credit (ERC) refund plus interest from the IRS, which impacts cash flow.
Q & A Highlights
Q: Looking at the impressive debt paydown in the quarter, how should we think of free cash generation going forward? Can we stay at these levels? And what are the priorities for cash?
A: Philip Fain, Chief Financial Officer, Treasurer: The level-loading has been a major help, extending through the supply chain and customer base, resulting in steadier cash flow. We've already reduced our debt by a couple of million dollars since the quarter ended. Going forward, we will balance debt paydown with strategic spending opportunities, including CapEx and potential acquisitions.
Q: As far as the efficiency efforts you're pursuing, what inning do you think we're in here as far as your strategic plan?
A: Michael Manna, President, Chief Executive Officer, Director: We're early in the game, probably in inning two. We've tackled the easy things first and are now focusing on integrating back-office systems and improving operations. This is a continual process, and we expect ongoing improvements.
Q: Within the battery segment, the products in the government and defense that are driving some of the near-term strength, how do you see the 2025 defense budget impacting this?
A: Michael Manna, President, Chief Executive Officer, Director: There are no significant decreases in the programs we're involved with through our prime customers. However, we are also dependent on our customers' supply chain, which can affect our sales.
Q: On the decline in oil and gas, is there anything cyclical or specific in offshore activity we should be aware of?
A: Michael Manna, President, Chief Executive Officer, Director: It seemed more like an overbuy by one or two customers last year and some reorganization on their part. We expect volume to rebound in the back half of the year. Our oil and gas portfolio is diversified between international and domestic markets.
Q: Regarding the Thin Cell opportunities, could the update in Q3 be a major gating event? How quickly can you ramp up to support that product?
A: Michael Manna, President, Chief Executive Officer, Director: We hope for a major event, but these initiatives are in the production stage. We haven't landed an anchor customer yet, and it takes time, especially with medical customers who need to get through FDA approvals.
Q: On the new sales resource investments, where are their efforts going to be focused?
A: Michael Manna, President, Chief Executive Officer, Director: One resource is focused on moving Thin Cell and Thionyl products with bigger OEM customers. The second resource is targeting major medical companies where we don't have existing relationships, aiming to develop new ones.
Q: On the IVAS battery, given the increasing need for power by foot soldiers globally, why are you continuing to invest, and what other programs could use this technology?
A: Michael Manna, President, Chief Executive Officer, Director: We develop technology to be versatile. We've been developing various versions of the conformal battery for 12 years. We believe there's a need for conformal batteries and want to recoup our investment. We aim to be a complete soldier power supplier with both conformal and legacy battery products.
Q: What are the key factors driving the strong performance in the battery and energy products segment?
A: Philip Fain, Chief Financial Officer, Treasurer: The growth was driven by strong sales to government defense and medical markets, which increased 30.5% and 20.1%, respectively. This was partially offset by a decline in oil and gas market sales.
Q: Can you elaborate on the impact of the cyberattack and the insurance recovery?
A: Philip Fain, Chief Financial Officer, Treasurer: We received a preliminary payment of $0.2 million from our insurance carrier for the cyberattack that occurred in Q1 2023. A considerably larger amount is still under review with the carrier.
Q: What are the expectations for the new amplification products in the communications systems segment?
A: Michael Manna, President, Chief Executive Officer, Director: We are completing validation and testing on a new amplification product with several international customers. This product is expected to be available for production orders by the end of the year. We are also advancing our next-generation high-performance amplifier engine.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
