UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation of organization)
(Address of principal executive offices) (Zip Code) |
(I.R.S. Employer Identification No.)
( (Registrant’s telephone number, including area code) |
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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(Title of each class) |
(Trading Symbol) |
(Name of each exchange on which registered) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
Accelerated filer ☐
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Smaller reporting company |
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Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of July 22, 2024, the registrant had
ULTRALIFE CORPORATION AND SUBSIDIARIES
INDEX
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Page |
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
Consolidated Financial Statements (unaudited): |
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Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 |
1 |
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Consolidated Statements of Income and Comprehensive Income for the Three and Six-Month Periods Ended June 30, 2024 and June 30, 2023 |
2 |
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Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2024 and June 30, 2023 |
3 |
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Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six-Month Periods Ended June 30, 2024 and June 30, 2023 |
4 |
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Notes to Consolidated Financial Statements (unaudited) |
5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
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Item 4. |
Controls and Procedures |
26 |
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PART II. |
OTHER INFORMATION |
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Item 6. |
Exhibits |
27 |
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Signatures |
28 |
PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands except share amounts)
(Unaudited)
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June 30, 2024 |
December 31, 2023 |
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| ASSETS | ||||||||
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Current assets: |
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Cash |
$ | $ | ||||||
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Trade accounts receivable, net of allowance for expected credit losses of $ |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill |
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Other intangible assets, net |
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Deferred income taxes, net |
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Other noncurrent assets |
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Total assets |
$ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
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Current liabilities: |
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Accounts payable |
$ | $ | ||||||
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Current portion of long-term debt |
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Accrued compensation and related benefits |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Long-term debt, net |
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Deferred income taxes |
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Other noncurrent liabilities |
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Total liabilities |
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Commitments and contingencies (Note 8) |
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Stockholders’ equity: |
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Preferred stock – par value $ per share; authorized |
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Common stock – par value $ per share; authorized |
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Capital in excess of par value |
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Accumulated deficit |
( |
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Accumulated other comprehensive loss |
( |
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Treasury stock - at cost; |
( |
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Total Ultralife Corporation equity |
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Non-controlling interest |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands except per share amounts)
(Unaudited)
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Three-month period ended |
Six-month period ended |
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June 30, 2024 |
June 30, 2023 |
June 30, 2024 |
June 30, 2023 |
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Revenues |
$ | $ | $ | $ | ||||||||||||
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Cost of products sold |
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Gross profit |
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Operating expenses: |
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Research and development |
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Selling, general and administrative |
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Total operating expenses |
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Operating income |
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Other (expense) income: |
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Interest and financing expense |
( |
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Miscellaneous income |
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Total other (expense) income |
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Income before income taxes |
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Income tax provision |
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Net income |
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Net income attributable to non-controlling interest |
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Net income attributable to Ultralife Corporation |
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Other comprehensive loss: |
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Foreign currency translation adjustments |
( |
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Comprehensive income attributable to Ultralife Corporation |
$ | $ | $ | $ | ||||||||||||
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Net income per share attributable to Ultralife common stockholders – basic |
$ | $ | $ | $ | ||||||||||||
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Net income per share attributable to Ultralife common stockholders – diluted |
$ | $ | $ | $ | ||||||||||||
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Weighted average shares outstanding – basic |
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Potential common shares |
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Weighted average shares outstanding - diluted |
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The accompanying notes are an integral part of these consolidated financial statements.
ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
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Six-month period ended |
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June 30, 2024 |
June 30, 2023 |
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OPERATING ACTIVITIES: |
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Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
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Depreciation |
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Amortization of intangible assets |
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Amortization of financing fees |
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Stock-based compensation |
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Deferred income taxes |
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Changes in operating assets and liabilities: |
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Accounts receivable |
( |
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Inventories |
( |
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Prepaid expenses and other assets |
( |
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Accounts payable and other liabilities |
( |
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Net cash provided by operating activities |
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INVESTING ACTIVITIES: |
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Purchases of property, plant and equipment |
( |
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Net cash used in investing activities |
( |
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FINANCING ACTIVITIES: |
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(Payments) borrowings on revolving credit facility |
( |
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Payments on term loan facility |
( |
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Proceeds from exercise of stock options |
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Net cash (used in) provided by financing activities |
( |
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Effect of exchange rate changes on cash |
( |
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(DECREASE) INCREASE IN CASH |
( |
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Cash, Beginning of period |
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Cash, End of period |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands except share amounts) (Unaudited)
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Capital |
Accumulated |
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Common Stock |
in Excess |
Other |
Non- |
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Number of |
of Par |
Comprehensive |
Accumulated |
Treasury |
Controlling |
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Shares |
Amount |
Value |
Income (Loss) |
Deficit |
Stock |
Interest |
Total |
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Balance – December 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Net income |
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Stock option exercises |
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Stock-based compensation – stock options |
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Stock-based compensation - restricted stock |
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Foreign currency translation adjustments |
( |
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Balance – June 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Balance – December 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Net income |
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Stock option exercises |
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Stock-based compensation – stock options |
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Stock-based compensation -restricted stock |
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Foreign currency translation adjustments |
( |
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Balance – June 30, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Balance – March 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Net income |
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Stock option exercises |
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Stock-based compensation – stock options |
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Stock-based compensation -restricted stock |
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Foreign currency translation adjustments |
( |
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Balance – June 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Balance – March 31, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
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Net income |
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Stock option exercises |
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Stock-based compensation – stock options |
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Stock-based compensation -restricted stock |
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Foreign currency translation adjustments |
( |
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Balance – June 30, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
ULTRALIFE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share amounts)
(Unaudited)
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1. |
BASIS OF PRESENTATION |
The accompanying unaudited consolidated financial statements of Ultralife Corporation and its subsidiaries (the “Company” or “Ultralife”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Rule 8-03 of Regulation S-X. Accordingly, they do not include all the information and notes for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation of the consolidated financial statements have been included. Results for interim periods should not be considered indicative of results to be expected for a full year. Reference should be made to the consolidated financial statements and related notes thereto contained in our Form 10-K for the year ended December 31, 2023.
The December 31, 2023 consolidated balance sheet information referenced herein was derived from audited financial statements but does not include all disclosures required by GAAP.
Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.
Recent Accounting Guidance Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.
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2. |
DEBT |
On December 13, 2021, Ultralife, Southwest Electronic Energy Corporation, a Texas corporation and wholly owned subsidiary of Ultralife (“SWE”), CLB, INC., a Texas corporation and wholly owned subsidiary of SWE (“CLB”), Ultralife Excell Holding Corp., a Delaware corporation and wholly owned subsidiary of Ultralife (“UEHC”), Ultralife Canada Holding Corp., a Delaware corporation and wholly owned subsidiary of UEHC (“UCHC”), and Excell Battery Corporation USA, a Texas corporation and wholly owned subsidiary of UEHC (“Excell USA”), as borrowers, entered into the Second Amendment Agreement with KeyBank National Association (“KeyBank” or the “Bank”), as lender and administrative agent, to amend the Credit and Security Agreement dated May 31, 2017 as amended by the First Amendment Agreement by and among Ultralife, SWE, CLB and KeyBank dated May 1, 2019 (the “Credit Agreement”). On November 28, 2022, Ultralife, SWE, CLB, UEHC, UCHC, Excell USA, and Excell Battery Canada ULC, a British Columbia unlimited liability corporation and wholly owned subsidiary of UCHC (“Excell Canada”), entered into that certain Third Amendment Agreement with KeyBank, to further amend the Credit Agreement to, among other things, facilitate the joinder of Excell Canada as a guarantor under the Credit Agreement and to replace the LIBOR benchmark thereunder with the Secured Overnight Financing Rate or “SOFR” (the “Third Amendment Agreement”). On June 30, 2024, Ultralife, SWE, CLB, UEHC, Excell USA and Excell Canada entered into that certain Fourth Amendment Agreement with KeyBank to extend the period under which loans may be requested by the Company under the Credit Agreement to May 30, 2028, to increase the “Applicable Margin” used in the calculation of the rate at which interest accrues on outstanding indebtedness under the Credit Agreement and to increase the fee payable on the average daily unused availability under the $
The Amended Credit Agreement, among other things, provides for a
As of June 30, 2024, the Company had $
The remaining availability under the Revolving Credit Facility is subject to certain borrowing base limits based on trade receivables and inventories.
The Company is required to repay the borrowings under the Term Loan Facility in equal consecutive monthly payments commencing on February 1, 2022, in arrears, together with applicable interest. All unpaid principal and accrued and unpaid interest with respect to the Term Loan Facility is due and payable in full on January 1, 2027. All unpaid principal and accrued and unpaid interest with respect to the Revolving Credit Facility is due and payable in full on May 30, 2028. The Company may voluntarily prepay principal amounts outstanding at any time subject to certain restrictions.
In addition to the customary affirmative and negative covenants, the Company must maintain a consolidated senior leverage ratio, as defined in the Amended Credit Agreement, of equal to or less than
Borrowings under the Amended Credit Facilities are secured by substantially all the assets of the Company and its subsidiaries.
Under the Amended Credit Agreement, interest accrues on outstanding indebtedness under the Amended Credit Facilities at the Daily Simple SOFR Rate, plus an index spread adjustment of
In addition, the Company must pay a fee of
Payments must be made by the Company to the extent borrowings exceed the maximum amount then permitted to be drawn on the Amended Credit Facilities and from the proceeds of certain transactions. Upon the occurrence of an event of default, the outstanding obligations may be accelerated, and the Bank will have other customary remedies including resort to the security interest the Company provided to the Bank.
Future minimum principal repayment obligations on our Amended Credit Facilities as of June 30, 2024 are as follows:
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2024 |
$ |
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2025 |
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2026 |
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2027 |
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2028 |
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Total |
$ |
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3. |
EARNINGS PER SHARE |
Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) attributable to Ultralife by the weighted average shares outstanding during the period. Diluted EPS includes the dilutive effect of securities, if any, and is calculated using the treasury stock method.
For the three-month period ended June 30, 2024, there were
For the six-month period ended June 30, 2024, there were
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4. |
SUPPLEMENTAL BALANCE SHEET INFORMATION |
Fair Value Measurements and Disclosures
The fair value of financial instruments approximated their carrying values at June 30, 2024 and December 31, 2023. The fair value of cash, accounts receivable, accounts payable, accrued liabilities, and the current portion of long-term debt approximates carrying value due to the short-term nature of these instruments.
Cash
The composition of the Company’s cash was as follows:
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June 30, |
December 31, |
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2024 |
2023 |
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Cash |
$ | $ | ||||||
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Restricted cash |
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Total |
$ | $ | ||||||
As December 31, 2023, restricted cash of $
Inventories, Net
Inventories are stated at the lower of cost or net realizable value, net of obsolescence reserves, with cost determined under the first-in, first-out (FIFO) method. The composition of inventories, net was:
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June 30, |
December 31, |
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2024 |
2023 |
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Raw materials |
$ | $ | ||||||
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Work in process |
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Finished goods |
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Total |
$ | $ | ||||||
Property, Plant and Equipment, Net
Major classes of property, plant and equipment consisted of the following:
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June 30, |
December 31, |
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2024 |
2023 |
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Land |
$ | $ | ||||||
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Buildings and leasehold improvements |
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Machinery and equipment |
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Furniture and fixtures |
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Computer hardware and software |
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Construction in process |
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Less: Accumulated depreciation |
( |
) | ( |
) | ||||
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Property, plant and equipment, net |
$ | $ | ||||||
Depreciation expense for property, plant and equipment was as follows:
| Three-month period ended |
Six-month period ended |
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June 30, |
June 30, |
June 30, |
June 30, |
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2024 |
2023 |
2024 |
2023 |
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Depreciation expense |
$ | $ | $ | $ | ||||||||||||
Goodwill
The following table summarizes the goodwill activity by segment for the six-month period ended June 30, 2024.
| Battery &
Energy |
Communications |
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Products |
Systems |
Total |
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Balance – December 31, 2023 |
$ | $ | $ | |||||||||
|
Effect of foreign currency translation |
( |
) | ( |
) | ||||||||
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Balance – June 30, 2024 |
$ | $ | $ | |||||||||
Other Intangible Assets, Net
The composition of other intangible assets was:
|
at June 30, 2024 |
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Accumulated |
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Cost |
Amortization |
Net |
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Customer relationships |
$ | $ | $ | |||||||||
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Patents and technology |
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Trade names |
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Trademarks |
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Other |
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Total other intangible assets |
$ | $ | $ | |||||||||
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at December 31, 2023 |
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Accumulated |
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Cost |
Amortization |
Net |
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Customer relationships |
$ | $ | $ | |||||||||
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Patents and technology |
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Trade names |
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Trademarks |
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Other |
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Total other intangible assets |
$ | $ | $ | |||||||||
The change in the cost of total intangible assets from December 31, 2023 to June 30, 2024 is the effect of foreign currency translations.
Amortization expense for other intangible assets was as follows:
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Three-month period ended |
Six-month period ended |
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June 30, |
June 30, |
June 30, |
June 30, |
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2024 |
2023 |
2024 |
2023 |
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Amortization included in: |
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Selling, general and administrative |
$ | $ | $ | $ | ||||||||||||
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Research and development |
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Total amortization expense |
$ | $ | $ | $ | ||||||||||||
|
5. |
STOCK-BASED COMPENSATION |
We recorded non-cash stock compensation expense in each period as follows:
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Three-month period ended |
Six-month period ended |
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June 30, |
June 30, |
June 30, |
June 30, |
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|
2024 |
2023 |
2024 |
2023 |
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Stock options |
$ | $ | $ | $ | ||||||||||||
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Restricted stock |
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Total |
$ | $ | $ | $ | ||||||||||||
We have stock options outstanding from various stock-based employee compensation plans for which we record compensation cost relating to share-based payment transactions in our financial statements. As of June 30, 2024, there was $
The following table summarizes stock option activity for the six-month period ended June 30, 2024:
|
Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (years) |
Aggregate Intrinsic Value |
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Outstanding at January 1, 2024 |
$ | |||||||||||||||
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Granted |
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Exercised |
( |
) | ||||||||||||||
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Forfeited or expired |
( |
) | $ | |||||||||||||
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Outstanding at June 30, 2024 |
$ | $ | ||||||||||||||
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Vested and expected to vest at June 30, 2024 |
$ | $ | ||||||||||||||
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Exercisable at June 30, 2024 |
$ | $ | ||||||||||||||
Cash received from stock option exercises under our stock-based compensation plans for the three-month periods ended June 30, 2024 and June 30, 2023 was $
Restricted stock awards vest in equal annual installments over three years. Unrecognized compensation cost related to unvested restricted shares at June 30, 2024 and June 30, 2023, respectively, was $
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6. |
INCOME TAXES |
Our effective tax rate for the six-month periods ended June 30, 2024 and June 30, 2023 was
As of December 31, 2023, we have domestic net operating loss (“NOL”) carryforwards of $
As of June 30, 2024, for certain past operations in the U.K., we continue to report a valuation allowance for NOL carryforwards of approximately $
As of June 30, 2024, we have recognized a valuation allowance against our other foreign deferred tax assets, as realization is considered to be more likely than not.
As of June 30, 2024, the Company maintains its assertion that all foreign earnings will be indefinitely reinvested in those operations, other than earnings generated in the U.K.
There were unrecognized tax benefits related to uncertain tax positions at June 30, 2024 and December 31, 2023.
As a result of our operations, we file income tax returns in various jurisdictions including U.S. federal, U.S. state and foreign jurisdictions. We are routinely subject to examination by taxing authorities in these various jurisdictions. Our U.S. tax matters for 2020 thru 2022 remain subject to IRS examination. Our U.S. tax matters for 2001-2002, -2007, 2009, and 2011-2015 also remain subject to IRS examination due to the remaining availability of net operating loss carryforwards generated in those years. Our U.S. tax matters for thru 2022 remain subject to examination by various state and local tax jurisdictions. Our tax matters for the years thru 2022 remain subject to examination by the respective foreign tax jurisdiction authorities.
|
7. |
OPERATING LEASES |
The Company has operating leases predominantly for operating facilities. As of June 30, 2024, the remaining lease terms on our operating leases range from approximately less than one (
The components of lease expense for the current and prior-year comparative periods were as follows:
|
Three months ended |
Six months ended |
|||||||||||||||
|
June 30, 2024 |
June 30, 2023 |
June 30, 2024 |
June 30, 2023 |
|||||||||||||
|
Operating lease cost |
$ | $ | $ | $ | ||||||||||||
|
Variable lease cost |
||||||||||||||||
|
Total lease cost |
$ | $ | $ | $ | ||||||||||||
Supplemental cash flow information related to leases was as follows:
|
Six-month period ended June 30, |
||||||||
|
2024 |
2023 |
|||||||
|
Cash paid for amounts included in the measurement of lease liabilities: |
||||||||
|
Operating cash flows from operating leases |
$ | $ | ||||||
|
Right-of-use assets obtained in exchange for lease liabilities: |
$ | $ | ||||||
Supplemental consolidated balance sheet information related to leases was as follows:
|
Balance sheet classification |
June 30, 2024 |
December 31, 2023 |
|||||||
|
Assets: |
|||||||||
|
Operating lease right-of-use asset |
Other noncurrent assets |
$ | $ | ||||||
|
Liabilities: |
|||||||||
|
Current operating lease liability |
Accrued expenses and other current liabilities |
$ | $ | ||||||
|
Operating lease liability, net of current portion |
Other noncurrent liabilities |
||||||||
|
Total operating lease liability |
$ | $ | |||||||
|
Weighted-average remaining lease term (years) |
|||||||||
|
Weighted-average discount rate |
% | % | |||||||
Future minimum lease payments as of June 30, 2024 are as follows:
|
Maturity of operating lease liabilities |
||||
|
2024 |
$ | |||
|
2025 |
||||
|
2026 |
||||
|
2027 |
||||
|
2028 |
||||
|
Thereafter |
||||
|
Total lease payments |
||||
|
Less: Imputed interest |
( |
) | ||
|
Present value of remaining lease payments |
$ |
|
8. |
COMMITMENTS AND CONTINGENCIES |
Purchase Commitments
As of June 30, 2024, we have made commitments to purchase approximately $
Product Warranties
We estimate future warranty costs to be incurred for product failure rates, material usage and service costs in the development of our warranty obligations. Estimated future costs are based on actual past experience and are generally estimated as a percentage of sales over the warranty period. Changes in our product warranty liability during the first six months of 2024 and 2023 were as follows:
|
Six-month period ended June 30, |
||||||||
|
2024 |
2023 |
|||||||
|
Accrued warranty obligations – beginning |
$ | $ | ||||||
|
Accruals for warranties issued |
||||||||
|
Settlements made |
( |
) | ( |
) | ||||
|
Accrued warranty obligations – ending |
$ | $ | ||||||
Contingencies and Legal Matters
We are subject to legal proceedings and claims that arise from time to time in the normal course of business. We believe that the final disposition of any such matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, recognizing that legal matters are subject to inherent uncertainties, there exists the possibility that ultimate resolution of these matters could have a material adverse impact on the Company’s financial position, results of operations or cash flows. We are not aware of any such situations at this time.
|
9. |
REVENUE RECOGNITION |
Revenues are generated from the sale of products. Performance obligations are met and revenue is recognized upon transfer of control to the customer, which is generally upon shipment. When contract terms require transfer of control upon delivery at a customer’s location, revenue is recognized on the date of delivery. For products shipped under vendor-managed inventory arrangements, revenue is recognized and billed when the product is consumed by the customer, at which point control has transferred and there are no further obligations by the Company. Revenue is measured as the amount of consideration we expect to receive in exchange for shipped product. Sales, value-added and other taxes billed and collected from customers are excluded from revenue. Customers, including distributors, do not have a general right of return.
Separately priced extended warranty contracts are offered on certain Communications Systems products for a duration of up to eight (
As of June 30, 2024, there was deferred revenue on extended warranty contracts of $
As of December 31, 2023, there was deferred revenue on extended warranty contracts of $
As of June 30, 2024 and December 31, 2023, the Company had no other unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, we have applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations.
|
10. |
BUSINESS SEGMENT INFORMATION |
We report our results in operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment includes Lithium 9-volt, cylindrical and various other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power supplies, charging systems and accessories. The Communications Systems segment includes RF amplifiers, power supplies, cable and connector assemblies, amplified speakers, equipment mounts, case equipment, man-portable systems, integrated communication systems for fixed or vehicle applications and communications and electronics systems design. We believe that reporting performance at the gross profit level is the best indicator of segment performance.
Three-month period ended June 30, 2024:
|
Battery & Energy Products |
Communications Systems |
Corporate |
Total |
|||||||||||||
|
Revenues |
$ | $ | $ | $ | ||||||||||||
|
Segment contribution |
( |
) | ||||||||||||||
|
Other expense |
( |
) | ( |
) | ||||||||||||
|
Income tax provision |
( |
) | ( |
) | ||||||||||||
|
Non-controlling interest |
( |
) | ( |
) | ||||||||||||
|
Net income attributable to Ultralife |
$ | |||||||||||||||
Three-month period ended June 30, 2023:
|
Battery & Energy Products |
Communications Systems |
Corporate |
Total |
|||||||||||||
|
Revenues |
$ | $ | $ | $ | ||||||||||||
|
Segment contribution |
( |
) | ||||||||||||||
|
Other income |
||||||||||||||||
|
Income tax provision |
( |
) | ( |
) | ||||||||||||
|
Non-controlling interest |
( |
) | ( |
) | ||||||||||||
|
Net income attributable to Ultralife |
$ | |||||||||||||||
Six-month period ended June 30, 2024:
|
Battery & Energy Products |
Communications Systems |
Corporate |
Total |
|||||||||||||
|
Revenues |
$ | $ | $ | $ | ||||||||||||
|
Segment contribution |
( |
) | ||||||||||||||
|
Other expense |
( |
) | ( |
) | ||||||||||||
|
Income tax provision |
( |
) | ( |
) | ||||||||||||
|
Non-controlling interest |
( |
) | ( |
) | ||||||||||||
|
Net income attributable to Ultralife |
$ | |||||||||||||||
Six-month period ended June 30, 2023:
|
Battery & Energy Products |
Communications Systems |
Corporate |
Total |
|||||||||||||
|
Revenues |
$ | $ | $ | $ | ||||||||||||
|
Segment contribution |
( |
) | ||||||||||||||
|
Other income |
||||||||||||||||
|
Income tax provision |
( |
) | ( |
) | ||||||||||||
|
Non-controlling interest |
( |
) | ( |
) | ||||||||||||
|
Net income attributable to Ultralife |
$ | |||||||||||||||
The following tables disaggregate our business segment revenues by major source and geography.
Commercial and Government/Defense Revenue Information:
Three-month period ended June 30, 2024:
|
Total Revenue |
Commercial |
Government/ Defense |
||||||||||
|
Battery & Energy Products |
$ | $ | $ | |||||||||
|
Communications Systems |
||||||||||||
|
Total |
$ | $ | $ | |||||||||
| % | % | |||||||||||
Three-month period ended June 30, 2023:
|
Total Revenue |
Commercial |
Government/ Defense |
||||||||||
|
Battery & Energy Products |
$ | $ | $ | |||||||||
|
Communications Systems |
||||||||||||
|
Total |
$ | $ | $ | |||||||||
| % | % | |||||||||||
Six-month period ended June 30, 2024:
|
Total Revenue |
Commercial |
Government/ Defense |
||||||||||
|
Battery & Energy Products |
$ | $ | $ | |||||||||
|
Communications Systems |
||||||||||||
|
Total |
$ | $ | $ | |||||||||
| % | % | |||||||||||
Six-month period ended June 30, 2023:
|
Total Revenue |
Commercial |
Government/ Defense |
||||||||||
|
Battery & Energy Products |
$ | $ | $ | |||||||||
|
Communications Systems |
||||||||||||
|
Total |
$ | $ | $ | |||||||||
| % | % | |||||||||||
U.S. and Non-U.S. Revenue Information1:
Three-month period ended June 30, 2024:
|
Total Revenue |
United States |
Non-United States |
||||||||||
|
Battery & Energy Products |
$ | $ | $ | |||||||||
|
Communications Systems |
||||||||||||
|
Total |
$ | $ | $ | |||||||||
| % | % | |||||||||||
Three-month period ended June 30, 2023:
|
Total Revenue |
United States |
Non-United States |
||||||||||
|
Battery & Energy Products |
$ | $ | $ | |||||||||
|
Communications Systems |
||||||||||||
|
Total |
$ | $ | $ | |||||||||
| % | % | |||||||||||
Six-month period ended June 30, 2024:
|
Total Revenue |
United States |
Non-United States |
||||||||||
|
Battery & Energy Products |
$ | $ | $ | |||||||||
|
Communications Systems |
||||||||||||
|
Total |
$ | $ | $ | |||||||||
| % | % | |||||||||||
Six-month period ended June 30, 2023:
|
Total Revenue |
United States |
Non-United States |
||||||||||
|
Battery & Energy Products |
$ | $ | $ | |||||||||
|
Communications Systems |
||||||||||||
|
Total |
$ | $ | $ | |||||||||
| % | % | |||||||||||
1 Sales classified to U.S. include shipments to U.S.-based prime contractors which in some cases may serve non-U.S. projects.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This report contains certain forward-looking statements and information that are based on the beliefs of management as well as assumptions made by and information currently available to management. The statements contained in this report relating to matters that are not historical facts are forward-looking statements that involve risks and uncertainties, including, but not limited to, changes in economic conditions including inflation and supply chain disruptions affecting our business, revenues and earnings adversely; our reliance on certain key customers; reductions or delays in U.S. and foreign military spending; our efforts to develop new products or new commercial applications for our products; potential disruptions in our supply of raw materials and components; breaches in information systems security and other disruptions in our information technology systems; our ability to recruit and retain top management and key personnel; our resources being overwhelmed by our growth; the continued impact of COVID-19, or other pandemics that may arise, causing delays in the manufacture and delivery of our mission critical products to end customers; the unique risks associated with our China operations; fluctuations in the price of oil and the resulting impact on the demand for downhole drilling; possible future declines in demand for the products that use our batteries or communications systems; variability in our quarterly and annual results and the price of our common stock; safety risks, including the risk of fire; rising interest rates increasing the cost of our variable borrowings; purchases by our customers of product quantities not meeting the volume expectations in our supply agreements; potential costs attributable to the warranties we supply with our products and services; our inability to comply with changes to the regulations for the shipment of our products; our entrance into new end-markets which could lead to additional financial exposure; negative publicity concerning Lithium-ion batteries; our ability to utilize our net operating loss carryforwards; our exposure to foreign currency fluctuations; possible impairments of our goodwill and other intangible assets; the risk that we are unable to protect our proprietary and intellectual property; rules and procedures regarding contracting with the U.S. and foreign governments; exposure to possible violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or other anti-corruption laws; known and unknown environmental matters; possible audits of our contracts by the U.S. and foreign governments and their respective defense agencies; our ability to comply with government regulations regarding the use of “conflict minerals”; and other risks and uncertainties, certain of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those forward-looking statements described herein. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “seek,” “project,” “intend,” “plan,” “may,” “will,” “should,” “foresee,” “could,” “likely,” or words of similar import are intended to identify forward-looking statements. For further discussion of certain of the matters described above and other risks and uncertainties, see Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.
Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and developments in the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements that we make herein speak only as of the date of those statements, and we undertake no obligation to update those statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.
Undue reliance should not be placed on our forward-looking statements. Except as required by law, we disclaim any obligation to update any risk factors or to publicly announce the results of any revisions to any of the forward-looking statements to reflect new information or risks, future events or other developments.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements and notes thereto in Part I, Item 1 of this Form 10-Q, and the consolidated financial statements and notes thereto and risk factors in our Annual Report on Form 10-K for the year ended December 31, 2023.
The financial information in this MD&A is presented in thousands of dollars, except for share and per share amounts, unless otherwise specified.
General
We offer products and services ranging from power solutions to communications and electronics systems to customers across the globe in the government, defense and commercial sectors. With an emphasis on strong engineering and a collaborative approach to problem solving, we design and manufacture power and communications systems including rechargeable and non-rechargeable batteries, charging systems, communications and electronics systems and accessories, and custom engineered systems related to those product lines. We continually evaluate ways to grow, including the design, development and sale of new products, expansion of our sales force to penetrate new markets and territories, as well as seeking opportunities to expand through acquisitions.
We sell our products worldwide through a variety of trade channels, including original equipment manufacturers (“OEMs”), industrial and defense supply distributors, and directly to U.S. and foreign defense departments. We enjoy strong name recognition in our markets under our Ultralife®, Ultralife HiRate®, Ultralife Thin Cell®, Ultralife Batteries Inc.®, Lithium Power®, McDowell Research®, AMTITM, ABLETM, ACCUTRONICSTM, ACCUPROTM, ENTELLIONTM, SWE Southwest Electronic Energy GroupTM, SWE SEASAFETM, Excell Battery GroupTM and Criterion GaugeTM brands, among others. We have sales, operations and product development facilities in North America, Europe and Asia.
We report our results in two operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment includes Lithium 9-volt, cylindrical, thin cell and other non-rechargeable batteries, in addition to rechargeable batteries, uninterruptable power supplies, charging systems and accessories. The Communications Systems segment includes RF amplifiers, power supplies, cable and connector assemblies, amplified speakers, equipment mounts, case equipment, man-portable systems, integrated communication systems for fixed or vehicle applications and communications and electronics systems design. We believe that reporting performance at the gross profit level is the best indicator of segment performance. As such, we report segment performance at the gross profit level and operating expenses as Corporate charges. (See Note 10 in the notes to consolidated financial statements in Item 1 of Part 1 of this Form 10-Q.)
Our website address is www.ultralifecorporation.com. We make available free of charge via a hyperlink on our website (see Investor Relations link on the website) our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports and statements as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). We will provide copies of these reports upon written request to the attention of Philip A. Fain, CFO, Treasurer and Secretary, Ultralife Corporation, 2000 Technology Parkway, Newark, New York, 14513. Our filings with the SEC are also available through the SEC website at www.sec.gov or at the SEC Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by calling 1-800-SEC-0330.
Overview
Consolidated revenues of $42,983 for the three-month period ended June 30, 2024, increased by $291 or 0.7%, over $42,692 for the three-month period ended June 30, 2023. Sales for our Battery & Energy Products segment increased 8.3% from $33,861 in the second quarter of 2023 to $36,683 for the second quarter of 2024, and sales for our Communications Systems segment decreased 28.6% from $8,831 to $6,300.
Gross profit was $11,563, or 26.9% of revenue, for the three-month period ended June 30, 2024, compared to $10,588, or 24.8% of revenue, for the same quarter a year ago. The 210-basis point improvement primarily resulted from higher factory volume and efficiencies resulting from our concerted effort to level-load production more evenly across the 2024 quarter, as well as improved price realization for our Battery & Energy Products segment, partially offset by a less favorable product sales mix for our Communications Systems business.
Operating expenses increased to $7,646 for the three-month period ended June 30, 2024, compared to $6,923 for the three-month period ended June 30, 2023. The increase of $723 or 10.4% was primarily attributable to investments in new product development, the addition of experienced sales resources and higher executive variable compensation costs accrued in the second quarter of 2024. Operating expenses represented 17.8% of revenues compared to 16.2% of revenues for the year-earlier period.
Operating income for the three-month period ended June 30, 2024 was $3,917, or 9.1% of revenues, compared to $3,665, or 8.6% of revenues, for the year-earlier period. The increase in operating income primarily resulted from the 210-basis point improvement in gross margin.
Other income for the second quarter of 2024 includes a preliminary payment of $235 from our insurance carrier pertaining to the ransomware cyberattack experienced by the Company in the first quarter of 2023. Other income for the second quarter of 2023 includes $1,544 attributable to an Employee Retention Credit (“ERC”) of under Section 2301 of the Coronavirus Aid, Relief and Economic Security Act which was filed with the Internal Revenue Service during that period.
Net income attributable to Ultralife Corporation was $2,969 or $0.18 per diluted share on a GAAP basis, compared to net income of $3,340 or 0.21 per diluted share for the second quarter of 2023. Adjusted EPS was $0.22 on a diluted basis for the second quarter of 2024, compared to $0.29 for the 2023 period. Adjusted EPS excludes the provision for deferred taxes of $744 which primarily represents non-cash charges for U.S. taxes which we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. Recognition of the ERC in the second quarter of 2023 increased GAAP and Adjusted EPS by $0.07 and $0.10, respectively for that period. See the section “Adjusted EPS” on Page 24 for a reconciliation of adjusted EPS to EPS.
Adjusted EBITDA, defined as net income (loss) attributable to Ultralife Corporation before net interest expense, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus expenses/income that we do not consider reflective of our ongoing operations, amounted to $5,415, or 12.6% of revenues, for the second quarter of 2024, compared to $6,296 including $1,544 for the ERC, or 14.7% of revenues, for the second quarter of 2023. See the section “Adjusted EBITDA” beginning on page 22 for a reconciliation of adjusted EBITDA to net income (loss) attributable to Ultralife Corporation.
Our main priorities continue to be gross margin increases through focused initiatives on material deflation, lean productivity, and scrap reduction for both businesses, and growing our opportunity funnels and customer wins to continue fueling our growth. We remain optimistic that we are well positioned to sustain profitable growth, generate incremental cash flow to further reduce our debt, and invest in strategic capital expenditures and accretive acquisitions.
Results of Operations
Three-Month Periods Ended June 30, 2024 and June 30, 2023
Revenues. Consolidated revenues for the three-month period ended June 30, 2024 were $42,983, an increase of $291, or 0.7%, over $42,692 for the three-month period ended June 30, 2023. Overall, commercial sales increased 2.6% and government/defense sales decreased 2.7%.
Battery & Energy Products revenues increased $2,822, or 8.3%, from $33,861 for the three-month period ended June 30, 2023 to $36,683 for the three-month period ended June 30, 2024, the highest revenue quarter for the segment in the Company’s history. The revenue growth was primarily attributable to an increase in government/defense sales of 30.5% reflecting strong demand from our U.S.-based global prime, and an increase in commercial sales of 2.6% reflecting medical market sales growth of 20.1%, partially offset by a 10.9% decline in oil & gas market sales.
Communications Systems sales decreased $2,531, or 28.7%, from $8,831 for the three-month period ended June 30, 2023 to $6,300 for the three-month period ended June 30, 2024. The decrease was primarily attributable to shipments in the 2023 period of vehicle-amplifier adaptor orders to a global defense contractor for the U.S. Army and of integrated systems of amplifiers and radio vehicle mounts to a major international defense contractor for an ongoing allied country government/defense modernization program which had been delayed from earlier periods due to supply chain disruptions.
Cost of Products Sold / Gross Profit. Cost of products sold totaled $31,420 for the quarter ended June 30, 2024, a decrease of $684, or 2.1%, from the $32,104 reported for the three-month period ended June 30, 2023. Consolidated cost of products sold as a percentage of total revenue decreased from 75.2% for the three-month period ended June 30, 2023 to 73.1% for the three-month period ended June 30, 2024. Correspondingly, consolidated gross margin increased from 24.8% for the three-month period ended June 30, 2023, to 26.9% for the three-month period ended June 30, 2024, primarily reflecting higher factory volume and efficiencies resulting from our concerted effort to level-load production more evenly across the 2024 quarter, as well as improved price realization for our Battery & Energy Products segment, partially offset by a less favorable product sales mix for our Communications Systems business.
For our Battery & Energy Products segment, gross profit for the second quarter of 2024 was $9,953, an increase of $2,410 or 32.0% from gross profit of $7,543 for the second quarter of 2024. Battery & Energy Products’ gross margin of 27.1% increased by 480-basis points from the 22.3% gross margin for the year-earlier period, primarily due to higher cost absorption and more efficiencies resulting from a concerted effort to level-load production more evenly across the 2024 quarter, as well as improved price realization. The 2023 period was impacted by lingering inefficiencies resulting from the January 2023 cyberattack, disposition of certain non-conforming materials and higher material and logistics costs.
For our Communications Systems segment, gross profit for the second quarter of 2024 was $1,610 or 25.6% of revenues, compared to gross profit of $3,045 or 34.5% of revenues for the second quarter of 2023. The decrease in gross margin was primarily due to a more favorable product sales mix in the year-earlier period.
Operating Expenses. Operating expenses for the three-month period ended June 30, 2024 were $7,646, an increase of $723, or 10.4%, from the $6,923 for the three-month period ended June 30, 2023. The increase was primarily attributable to investments in new product development, the addition of experienced sales resources and higher executive variable compensation costs accrued in the second quarter of 2024.
Overall, operating expenses were 17.8% of revenue for the quarter ended June 30, 2024 compared to 16.2% of revenue for the quarter ended June 30, 2023. Amortization expense associated with intangible assets related to our acquisitions was $227 for the second quarter of 2024 ($202 in selling, general and administrative expenses and $25 in research and development costs), identical to the $227 for the second quarter of 2023 ($203 in selling, general, and administrative expenses and $24 in research and development costs). Research and development costs were $1,997 for the three-month period ended June 30, 2024, an increase of $219 or 12.3%, from $1,778 for the three-month period ended June 30, 2023. The increase is largely attributable to the timing of new product development in both of our businesses as we aggressively pursue both government/defense major programs and commercial opportunities. Selling, general, and administrative expenses were $5,649 for the three-month period ended June 30, 2024, an increase of $504 or 9.8% from $5,145 for the second quarter of 2023. The period over period increase was primarily attributable to higher executive variable compensation costs accrued in the second quarter of 2024 as well as the addition of experienced sales resources.
Other (Expense) Income. Other (expense) income totaled $(71) for the three-month period ended June 30, 2024 compared to $1,058 for the three-month period ended June 30, 2023. Other income for the second quarter of 2024 includes a preliminary payment of $235 from our insurance carrier pertaining to the ransomware cyberattack experienced by the Company in the first quarter of 2023. Other income for the second quarter of 2023 includes $1,544 attributable to an Employee Retention Credit (“ERC”) claimed by the Company under Section 2301 of the Coronavirus Aid, Relief and Economic Security Act. Interest and financing expense decreased $22, or 5.1%, from ($440) for the second quarter of 2023 to ($418) for the comparable period in 2024. The decrease is due to the paydown of debt in the second quarter of 2024. Excluding the $235 gain on insurance proceeds, miscellaneous income was $112 for the second quarter of 2024 and excluding the $1,544 gain for the ERC, miscellaneous income (expense) amounted to ($46) for the second quarter of 2023, primarily attributable to foreign exchange gains and loss due to fluctuations in foreign currency exchange rates.
Income Taxes. For the three-month period ended June 30, 2024, Ultralife recognized an income tax provision of $853, comprised of a current provision of $109 expected to be paid on income primarily in foreign jurisdictions and a deferred tax provision of $744 which primarily represents non-cash charges for U.S. taxes which we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. This compares to a tax provision of $1,375 comprised of a current provision of $97 and deferred expense of $1,278 for the three-month period ended June 30, 2023. Our effective tax rate was 22.2% for the second quarter of 2024 as compared to 29.1% for the second quarter of 2023, primarily attributable to the geographic mix of our operating results and the larger impact of discrete adjustments for employee stock option exercises in the current year. See Note 6 to the consolidated financial statements in Item 1 of Part I of this Form 10-Q for additional information regarding our income taxes.
Net Income Attributable to Ultralife. Net income attributable to Ultralife was $2,969 or $0.18 per share – basic and diluted on a GAAP basis for the three-month period ended June 30, 2024 compared to $3,340, or $0.21 per share – basic and diluted for the three-month period ended June 30, 2023. Adjusted EPS was $0.22 on a diluted basis for the second quarter of 2024, compared to $0.29 for the second quarter of 2023. Adjusted EPS excludes the provision for deferred taxes of $744 and $1,278 for the 2024 and 2023 periods, respectively, which primarily represent non-cash charges for U.S. taxes which we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. Recognition of the ERC in the second quarter of 2023 increased GAAP and Adjusted EPS by $0.07 and $0.10, respectively for that period. See the section “Adjusted EPS” on Page 24 for a reconciliation of adjusted EPS to EPS.
Weighted average shares outstanding used to compute diluted earnings per share decreased from 16,143,686 for the second quarter of 2023 to 16,825,321 for the second quarter of 2024. The increase is attributable to stock option exercises since the second quarter of 2023 and an increase in the average stock price used to compute diluted shares from $4.52 for the second quarter of 2023 to $10.65 for the second quarter of 2024. Accordingly, dilutive shares of 2,334 were added to basic weighted average shares for the 2023 period compared to 257,068 for the 2024 period.
Six-Month Periods Ended June 30, 2024 and June 30, 2023
Revenues. Consolidated revenues for the six-month period ended June 30, 2024 were $84,910, an increase of $10,302, or 13.8%, over $74,608 for the six-month period ended June 30, 2023. Overall, government/defense sales increased $7,667 or 30.1% and commercial sales increased $2,635 or 5.4%. On January 25, 2023, the Company experienced a ransomware cyberattack which impacted our ability to process orders, ship products, provide services to our customers and effectively manage our sales and operating planning process over a several week period for our Newark, NY location and an even longer period for our Virginia Beach, VA location. A large portion of our time during the quarter was devoted to data restoration, systems security augmentation, and regulatory reporting of the cyberattack, all of which were successfully accomplished with no ransom paid. Management continues to work on its cybersecurity insurance claim covering the cost of engaging external cybersecurity experts and the business interruption impact.
Battery & Energy Products revenues increased $9,341, or 15.0%, from $62,331 for the six-month period ended June 30, 2023 to $71,672 for the six-month period ended June 30, 2024. The increase was attributable to a $6,706 or 50.9% increase in government/defense sales and a $2,635 or 5.4% increase in commercial sales. The increase in government/defense sales primarily reflects continued strong demand from our largest U.S.-based global prime. The growth in commercial sales was driven by a $5,266 or 33.3% increase in medical sales due to continuing surging demand for our core medical battery products from global medical device OEM’s and a $96 or 0.8% increase in industrial sales, partially offset by a decrease of $2,727 or 12.4% in oil & gas sales due primarily to general economic conditions.
Communications Systems revenues increased $961 or 7.8%, from $12,277 for the six-month period ended June 30, 2023 to $13,238 for the six-month period ended June 30, 2024. This increase was 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 U.S.-based global prime.
Operating Expenses. Operating expenses for the six-month period ended June 30, 2024 were $15,053, an increase of $720 or 5.0% from the $14,333 for the six-month period ended June 30, 2023. The increase is primarily attributable to commissions on higher sales, greater participation in trade shows and higher executive variable compensation costs accrued in the first half of 2024. Both periods reflected continued tight control over discretionary spending.
Overall, operating expenses as a percentage of revenues were 17.7% for the six-month period ended June 30, 2024 compared to 19.2% for the six-month period ended June 30, 2023. Amortization expense associated with intangible assets related to our acquisitions was $455 for the first six months of 2023 ($405 in selling, general and administrative expenses and $50 in research and development costs), compared with $436 for the first six months of 2023 ($388 in selling, general, and administrative expenses and $48 in research and development costs). Research and development costs were $3,753 for the six-month period ended June 30, 2024, a decrease of $57 or 1.5%, from $3,810 for the six-months ended June 30, 2023. Selling, general, and administrative expenses increased $777, or 7.4%, from $10,523 for the first six months of 2023 to $11,300 for the first six months of 2024. The increase primarily resulted from commissions on higher sales, greater participation in trade shows and higher executive variable compensation costs accrued in the first half of 2024.
Other (Expense) Income. Other (expense) income totaled ($527) for the six-month period ended June 30, 2024 compared to $564 for the six-month period ended June 30, 2023. Other income (expense) for the 2024 period includes a preliminary payment of $235 from our insurance carrier pertaining to the cyberattack experienced by the Company in the first quarter of 2023, and other income for the 2023 period includes $1,544 attributable to an ERC claimed by the Company under Section 2301 of the Coronavirus Aid, Relief and Economic Security Act. Interest and financing expense increased $74, or 8.6%, from ($864) for the first six months of 2023 to ($938) for the comparable period in 2024. The increase is primarily due to rising interest rates which was partially offset by reductions of debt primarily during May and June of 2024. Excluding the $235 gain on insurance proceeds in 2024, miscellaneous income (expense) was $176, and excluding the $1,544 ERC gain in the 2023 period, miscellaneous income (expense) amounted to ($116), primarily attributable to foreign exchange gains and loss due to fluctuations in foreign currency exchange rates.
Income Taxes. The income tax provision for the 2024 six-month period was $1,556 compared to $1,242 for the 2023 six-month period. Our effective tax rate decreased to 20.9% from 29.2% for the 2023 period, primarily due to the geographic mix of our operating results and the larger impact of discrete adjustments for employee stock option exercises in the current period. The income tax provision for the first six months of 2024 is comprised of a $162 current provision for taxes expected to be paid on income primarily in foreign jurisdictions, representing a cash-based effective tax rate of 2.0%, and a $1,394 deferred tax provision which primarily represents non-cash charges for U.S. taxes which we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. For the comparable 2023 period, the income tax provision was comprised of a $354 current provision for taxes expected to be paid on income primarily in foreign jurisdictions, representing a cash-based effective tax rate of 8.3%, and an $888 deferred tax provision which primarily represents non-cash charges for U.S. taxes that we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. The period over period change in the cash-based effective tax rate is primarily attributable to the geographic mix of our operating results. See Note 6 to the consolidated financial statements in Item 1 of Part I of this Form 10-Q for additional information regarding our income taxes.
Net Income Attributable to Ultralife. Net income attributable to Ultralife was $5,860, or $0.36 per share – basic $0.35 per share - diluted on a GAAP basis for the six-month period ended June 30, 2024, compared to $2,994, or $0.19 per share – basic and diluted, for the six-month period ended June 30, 2023. Adjusted EPS was $0.44 on a diluted basis for the 2024 period, compared to $0.24, for the 2023 period. Adjusted EPS excludes the provision for deferred taxes of $1,394 and $888 for the 2024 and 2023 periods, respectively, which primarily represents non-cash charges for U.S. taxes which we expect will be fully offset by net operating loss carryforwards and other tax credits for the foreseeable future. See the section “Adjusted EPS” on Page 24 for a reconciliation of adjusted EPS to EPS.
Weighted average shares outstanding used to compute diluted earnings per share increased from 16,140,528 for the first six-months of 2023 to 16,661,175 for the first six-months of 2024. The increase is attributable to stock option exercises since the second quarter of 2023 and an increase in the average stock price used to compute diluted shares from $4.25 for the six-month period ended June 30, 2023 to $9.41 for the six-month period ended June 30, 2024. Accordingly diluted shares of 179,112 were added to basic weighted average shares in 2024 compared to 2,157 in 2023.
Adjusted EBITDA
In evaluating our business, we consider and use adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure of our operating performance. We define adjusted EBITDA as net income (loss) attributable to Ultralife before interest expense, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus expense/income that we do not consider reflective of our ongoing continuing operations. We also use adjusted EBITDA as a supplemental measure to review and assess our operating performance and to enhance comparability between periods. We believe the use of adjusted EBITDA facilitates investors’ understanding of operating performance from period to period by backing out potential differences caused by variations in such items as capital structures (affecting relative interest expense and stock-based compensation expense), the amortization of intangible assets acquired through our business acquisitions (affecting relative amortization expense and provision (benefit) for income taxes), the age and book value of facilities and equipment (affecting relative depreciation expense) and one-time charges/benefits relating to income taxes. We also present adjusted EBITDA from operations because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance. We reconcile adjusted EBITDA to net income (loss) attributable to Ultralife, the most comparable financial measure under GAAP.
We use adjusted EBITDA in our decision-making processes relating to the operation of our business together with GAAP financial measures such as operating income (loss). We believe that adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while eliminating the effects of depreciation and amortization, which may vary from period to period without any correlation to underlying operating performance, and of stock-based compensation, which is a non-cash expense that varies widely among companies. We believe that by presenting adjusted EBITDA, we assist investors in gaining a better understanding of our business on a going forward basis. We provide information relating to our adjusted EBITDA so that securities analysts, investors and other interested parties have the same data that we employ in assessing our overall operations. We believe that trends in our adjusted EBITDA are a valuable indicator of our operating performance on a consolidated basis and of our ability to produce operating cash flows to fund working capital needs, to service debt obligations and to fund capital expenditures.
The term adjusted EBITDA is not defined under GAAP and is not a measure of operating income (loss), operating performance or liquidity presented in accordance with GAAP. Our adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss) attributable to Ultralife or other consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include, but are not limited to, the following:
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Adjusted EBITDA does not reflect (1) our cash expenditures or future requirements for capital expenditures or contractual commitments; (2) changes in, or cash requirements for, our working capital needs; (3) the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; (4) income taxes or the cash requirements for any tax payments; and (5) all of the costs associated with operating our business; |
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Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and adjusted EBITDA from continuing operations does not reflect any cash requirements for such replacements; |
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While stock-based compensation is a component of cost of products sold and operating expenses, the impact on our consolidated financial statements compared to other companies can vary significantly due to such factors as assumed life of the stock-based awards and assumed volatility of our common stock; and |
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Other companies may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. |
We compensate for these limitations by relying primarily on our GAAP results and using adjusted EBITDA only on a supplemental basis. Neither current nor potential investors in our securities should rely on adjusted EBITDA as a substitute for any GAAP measures and we encourage investors to review the following reconciliation of adjusted EBITDA to net income attributable to Ultralife Corporation.
Adjusted EBITDA is calculated as follows for the periods presented:
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Three-Month Period Ended |
Six-Month Period Ended |
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June 30, |
June 30, |
June 30, |
June 30, |
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2024 |
2023 |
2024 |
2023 |
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Net income attributable to Ultralife Corporation |
$ | 2,969 | $ | 3,340 | $ | 5,860 | $ | 2,994 | ||||||||
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Add: |
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Interest expense |
418 | 440 | 938 | 864 | ||||||||||||
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Income tax provision |
853 | 1,375 | 1,556 | 1,242 | ||||||||||||
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Depreciation expense |
789 | 760 | 1,529 | 1,522 | ||||||||||||
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Amortization expense |
227 | 227 | 455 | 436 | ||||||||||||
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Stock-based compensation expense |
159 | 154 | 320 | 293 | ||||||||||||
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Cybersecurity insurance policy deductible |
- | - | - | 100 | ||||||||||||
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Adjusted EBITDA |
$ | 5,415 | $ | 6,296 | $ | 10,658 | $ | 7,451 | ||||||||
Adjusted Earnings Per Share
In evaluating our business, we consider and use adjusted EPS, a non-GAAP financial measure, as a supplemental measure of our business performance. We define adjusted EPS as net income attributable to Ultralife Corporation excluding the provision (benefit) for deferred income taxes divided by our weighted average shares outstanding on both a basic and diluted basis. We believe that this information is useful in providing period-to-period comparisons of our results by reflecting the portion of our tax provision that will be predominantly offset by our U.S. net operating loss carryforwards and other tax credits for the foreseeable future. We reconcile adjusted EPS to EPS, the most comparable financial measure under GAAP. Neither current nor potential investors in our securities should rely on adjusted EPS as a substitute for any GAAP measures and we encourage investors to review the following reconciliation of adjusted EPS to EPS and net income attributable to Ultralife Corporation.
Adjusted EPS is calculated as follows for the periods presented:
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Three-Month Period Ended |
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June 30, 2024 |
June 30, 2023 |
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Amount |
Per Basic Share |
Per Diluted Share |
Amount |
Per Basic Share |
Per Diluted Share |
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Net income attributable to Ultralife Corporation |
$ | 2,969 | $ | .18 | $ | .18 | $ | 3,340 | $ | .21 | $ | .21 | ||||||||||||
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Deferred tax provision |
744 | .04 | .04 | 1,278 | .08 | .08 | ||||||||||||||||||
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Adjusted net income |
$ | 3,713 | $ | .22 | $ | .22 | $ | 4,618 | $ | .29 | $ | .29 | ||||||||||||
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Weighted Average Shares Outstanding |
16,568 | 16,825 | 16,141 | 16,144 | ||||||||||||||||||||
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Six-Month Period Ended |
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June 30, 2024 |
June 30, 2023 |
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Amount |
Per Basic Share |
Per Diluted Share |
Amount |
Per Basic Share |
Per Diluted Share |
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Net income attributable to Ultralife Corporation |
$ | 5,860 | $ | .36 | $ | .35 | $ | 2,994 | $ | .19 | $ | .19 | ||||||||||||
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Deferred tax provision |
1,394 | .08 | .09 | 888 | .05 | .05 | ||||||||||||||||||
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Adjusted net income |
$ | 7,254 | $ | .44 | $ | .44 | $ | 3,882 | $ | .24 | $ | .24 | ||||||||||||
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Weighted Average Shares Outstanding |
16,482 | 16,661 | 16,138 | 16,141 | ||||||||||||||||||||
Liquidity and Capital Resources
As of June 30, 2024, cash totaled $6,690, as compared to $10,278 at December 31, 2023. The decrease reflects a $13,679 reduction in our outstanding debt, largely offset by strong income and cash generation during the period.
For the six-month period ended June 30, 2024, cash generated from operations was $8,844, as compared to $386 generated for the six-month period ended June 30, 2023. For the 2024 period, cash generated from operations was comprised of net income of $5,897 plus non-cash items totaling $3,730 for depreciation, amortization, stock-based compensation, and deferred taxes, partially offset by $783 attributable to working capital.
Cash used in investing activities for the six months ended June 30, 2023 was $732 for capital expenditures, primarily reflecting investments in equipment for new products transitioning to higher-volume manufacturing.
Cash used in financing activities for the six months ended June 30, 2024 was $11,743, representing a $13,679 reduction in our outstanding debt, partially offset by $1,936 in cash generated from employee stock option exercise proceeds during the period.
We continue to have significant U.S. net operating loss carryforwards available to utilize as an offset to future taxable income. See Note 6 to the consolidated financial statements of this Form 10-Q for additional information.
Going forward, we expect positive operating cash flow and the availability under our Revolving Credit Facility will be sufficient to meet our general funding requirements for the foreseeable future.
To provide flexibility in accessing the capital markets, on March 30, 2021, the Company filed a shelf registration statement on Form S-3 (File No. 333-254846) (the “Prior Registration Statement”) registering securities in an aggregate amount of $100,000,000. None of the $100,000,000 of registered securities were sold under the Prior Registration Statement (the “Unsold Securities”). Under the rules of the Securities and Exchange Commission (the “SEC”) the Prior Registration Statement was set to expire on April 2, 2024. Therefore, on March 29, 2024, the Company filed a new shelf registration statement on Form S-3 (File No. 333-278360) (the “New Registration Statement”) to replace the Prior Registration Statement. The New Registration Statement includes all $100,000,000 of the Unsold Securities registered on the Prior Registration Statement. During the grace period afforded by Rule 415(a)(5) under the Securities Act of 1933, as amended (the “Securities Act”), we may offer and sell the Unsold Securities under the Prior Registration Statement until the SEC declares the New Registration Statement effective. Pursuant to Rule 415(a)(6) under the Securities Act, the offering of the Unsold Securities under the Prior Registration Statement will be deemed terminated as of the date of effectiveness of the New Registration Statement. Upon the filing of an appropriate prospectus supplement or supplements under either the Prior Registration Statement, or upon its effectiveness the New Registration Statement, we may offer and sell our securities from time to time in one or more offerings, at our discretion. We intend to use the net proceeds resulting from any sales of these securities for general corporate purposes which may include, but are not limited to, potential acquisitions of complementary businesses or technologies, strategic capital expenditures to expand and protect our competitive position, and investments in the development of transformational, competitively differentiated products for attractive growth markets.
Commitments
As of June 30, 2024, the Company had $6,902 outstanding borrowings on the Revolving Credit Facility and $5,167 on the Term Loan Facility. The Company was in full compliance with all covenants under the Credit Facilities as of June 30, 2024.
As of June 30, 2024, we had made commitments to purchase approximately $779 of production machinery and equipment.
Critical Accounting Policies
Management exercises judgment in making important decisions pertaining to choosing and applying accounting policies and methodologies in many areas. Not only are these decisions necessary to comply with GAAP, but they also reflect management’s view of the most appropriate manner in which to record and report our overall financial performance. All accounting policies are important, and all policies described in Note 1 to the consolidated financial statements in our 2023 Annual Report on Form 10-K should be reviewed for a greater understanding of how our financial performance is recorded and reported.
During the first six months of 2024, there were no significant changes in the manner in which our significant accounting policies were applied or in which related assumptions and estimates were developed.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our President and Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer and Treasurer (Principal Financial Officer) have evaluated our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e)) as of the end of the period covered by this quarterly report. Based on this evaluation, our President and Chief Executive Officer and Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures were effective as of such date.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Securities Exchange Act Rule 13a-15(f)) that occurred during the fiscal quarter covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 6. Exhibits
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Exhibit Index |
Exhibit Description |
Incorporated by Reference from |
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10.1 |
Filed herewith |
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31.1 |
Filed herewith |
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31.2 |
Filed herewith |
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32 |
Furnished herewith |
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101.INS |
Inline XBRL Instance Document |
Filed herewith |
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101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
Filed herewith |
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101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
Filed herewith |
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101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
Filed herewith |
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101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
Filed herewith |
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101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
Filed herewith |
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104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Filed herewith |
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| Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023, (ii) Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2024 and 2023, (iii) Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023, (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023, and (v) Notes to Consolidated Financial Statements. | ||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ULTRALIFE CORPORATION |
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(Registrant) |
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Date: July 25, 2024 |
By: | /s/ |
Michael E. Manna |
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Michael E. Manna |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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Date: July 25, 2024 |
By: | /s/ |
Philip A. Fain |
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Philip A. Fain |
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Chief Financial Officer and Treasurer |
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(Principal Financial Officer and |
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Principal Accounting Officer) |