UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
☒
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the quarterly period ended March
31, 2020
OR
☐
|
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: 0-20852
ULTRALIFE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation of organization)
2000 Technology Parkway Newark, New York 14513
(Address of principal executive offices) (Zip Code)
|
16-1387013
(I.R.S. Employer Identification No.)
(315) 332-7100
(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:
Common Stock, $0.10 par value per share
|
ULBI
|
NASDAQ
|
(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. Yes ☒ No ☐
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). Yes ☒ No
☐
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.
Large accelerated filer ☐
|
Accelerated filer ☒
|
Non-accelerated filer ☐
|
Smaller reporting company ☒
|
|
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☐ No☒
As of April 28, 2020,
the registrant had 15,879,284 shares of
common stock outstanding.
ULTRALIFE CORPORATION AND SUBSIDIARIES
INDEX
|
|
Page
|
PART I.
|
FINANCIAL INFORMATION
|
|
|
|
|
Item 1.
|
Consolidated Financial Statements (unaudited):
|
|
|
|
|
|
Consolidated Balance Sheets as of March 31, 2020 and December
31, 2019
|
3
|
|
|
|
|
Consolidated Statements of Income and Comprehensive Income for the
Three-Month Periods Ended March 31, 2020 and March 31, 2019
|
4
|
|
|
|
|
Consolidated Statements of Cash Flows for the Three-Month Periods
Ended March 31, 2020 and March 31, 2019
|
5
|
|
|
|
|
Consolidated Statements of Changes in Shareholders’ Equity for the
Three-Month Periods Ended March 31, 2020 and March 31, 2019
|
6
|
|
|
|
|
Notes to Consolidated Financial Statements
|
7
|
|
|
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and
Results of Operations
|
18
|
|
|
|
Item 4.
|
Controls and Procedures
|
25
|
|
|
|
PART II.
|
OTHER INFORMATION
|
|
|
|
|
Item 1A.
|
Risk Factors
|
26
|
|
|
|
Item 6.
|
Exhibits
|
27
|
|
|
|
|
Signatures
|
28
|
PART I. FINANCIAL
INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands except share amounts)
(Unaudited)
|
|
|
March 31,
|
|
|
December 31
|
|
|
|
2020
|
|
|
2019
|
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
6,109 |
|
|
$ |
7,405 |
|
Trade accounts receivable, net of allowance for doubtful accounts
of $311 and $324, respectively
|
|
|
35,750 |
|
|
|
30,106 |
|
Inventories, net
|
|
|
28,979 |
|
|
|
29,759 |
|
Prepaid expenses and other current assets
|
|
|
2,730 |
|
|
|
3,103 |
|
Total current assets
|
|
|
73,568 |
|
|
|
70,373 |
|
Property, plant and equipment, net
|
|
|
22,039 |
|
|
|
22,525 |
|
Goodwill
|
|
|
26,468 |
|
|
|
26,753 |
|
Other intangible assets, net
|
|
|
9,405 |
|
|
|
9,721 |
|
Deferred income taxes, net
|
|
|
12,887 |
|
|
|
13,222 |
|
Other noncurrent assets
|
|
|
1,783 |
|
|
|
1,963 |
|
Total Assets
|
|
$ |
146,150 |
|
|
$ |
144,557 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
11,731 |
|
|
$ |
9,388 |
|
Current portion of long-term debt
|
|
|
1,467 |
|
|
|
1,372 |
|
Accrued compensation and related benefits
|
|
|
1,597 |
|
|
|
1,655 |
|
Accrued expenses and other current liabilities
|
|
|
4,133 |
|
|
|
4,775 |
|
Total current liabilities
|
|
|
18,928 |
|
|
|
17,190 |
|
Long-term debt
|
|
|
15,354 |
|
|
|
15,780 |
|
Deferred income taxes
|
|
|
496 |
|
|
|
559 |
|
Other noncurrent liabilities
|
|
|
1,103 |
|
|
|
1,278 |
|
Total liabilities
|
|
|
35,881 |
|
|
|
34,807 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock – par value $.10 per share; authorized 1,000,000
shares; none issued
|
|
|
- |
|
|
|
- |
|
Common stock – par value $.10 per share; authorized 40,000,000
shares; issued – 20,281,516 shares at March 31, 2020 and 20,268,050
shares at December 31, 2019; outstanding – 15,879,284 shares at
March 31, 2020 and 15,866,868 shares at December 31, 2019
|
|
|
2,028 |
|
|
|
2,026 |
|
Capital in excess of par value
|
|
|
184,550 |
|
|
|
184,292 |
|
Accumulated deficit
|
|
|
(51,771 |
) |
|
|
(52,830 |
) |
Accumulated other comprehensive loss
|
|
|
(3,338 |
) |
|
|
(2,531 |
) |
Treasury stock - at cost; 4,402,232 shares at March 31, 2020 and
4,401,182 shares at December 31, 2019
|
|
|
(21,239 |
) |
|
|
(21,231 |
) |
Total Ultralife Corporation equity
|
|
|
110,230 |
|
|
|
109,726 |
|
Non-controlling interest
|
|
|
39 |
|
|
|
24 |
|
Total shareholders’ equity
|
|
|
110,269 |
|
|
|
109,750 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$ |
146,150 |
|
|
$ |
144,557 |
|
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)
|
|
|
Three-month period ended
|
|
|
|
March 31,
2020
|
|
|
March 31,
2019
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
25,814 |
|
|
$ |
18,882 |
|
Cost of products sold
|
|
|
18,480 |
|
|
|
13,798 |
|
Gross profit
|
|
|
7,334 |
|
|
|
5,084 |
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,548 |
|
|
|
1,036 |
|
Selling, general and administrative
|
|
|
4,301 |
|
|
|
3,500 |
|
Total operating expenses
|
|
|
5,849 |
|
|
|
4,536 |
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,485 |
|
|
|
548 |
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
Interest and financing expense
|
|
|
(174 |
) |
|
|
(5 |
) |
Miscellaneous income (expense)
|
|
|
82 |
|
|
|
(53 |
) |
Total other expense
|
|
|
(92 |
) |
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,393 |
|
|
|
490 |
|
Income tax provision
|
|
|
319 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,074 |
|
|
|
449 |
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interest
|
|
|
(15 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
Net income attributable to Ultralife Corporation
|
|
|
1,059 |
|
|
|
425 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss)
gain:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(807 |
) |
|
|
435 |
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Ultralife
Corporation
|
|
$ |
252 |
|
|
$ |
860 |
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Ultralife common
shareholders – basic
|
|
$ |
.07 |
|
|
$ |
.03 |
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Ultralife common
shareholders – diluted
|
|
$ |
.07 |
|
|
$ |
.03 |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding –
basic
|
|
|
15,875 |
|
|
|
15,740 |
|
Potential common shares
|
|
|
212 |
|
|
|
485 |
|
Weighted average shares outstanding -
diluted
|
|
|
16,087 |
|
|
|
16,225 |
|
ULTRALIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
|
|
|
Three-month period ended
|
|
|
|
March 31,
2020
|
|
|
March 31,
2019
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,074 |
|
|
$ |
449 |
|
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
579 |
|
|
|
447 |
|
Amortization of intangible assets
|
|
|
149 |
|
|
|
92 |
|
Amortization of financing fees
|
|
|
12 |
|
|
|
9 |
|
Stock-based compensation
|
|
|
230 |
|
|
|
185 |
|
Deferred income taxes
|
|
|
242 |
|
|
|
(5 |
) |
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,764 |
) |
|
|
2,076 |
|
Inventories
|
|
|
596 |
|
|
|
(4,963 |
) |
Prepaid expenses and other assets
|
|
|
604 |
|
|
|
(1 |
) |
Accounts payable and other liabilities
|
|
|
1,913 |
|
|
|
1,166 |
|
Net cash used in operating activities
|
|
|
(365 |
) |
|
|
(545 |
) |
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(565 |
) |
|
|
(2,581 |
) |
Proceeds from sale of equipment
|
|
|
120 |
|
|
|
- |
|
Net cash used in investing activities
|
|
|
(445 |
) |
|
|
(2,581 |
) |
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payment of credit facilities
|
|
|
(343 |
) |
|
|
- |
|
Proceeds from exercise of stock options
|
|
|
29 |
|
|
|
356 |
|
Tax withholdings on stock-based awards
|
|
|
(8 |
) |
|
|
(8 |
) |
Repurchase of common stock
|
|
|
- |
|
|
|
(1,957 |
) |
Net cash used in financing activities
|
|
|
(322 |
) |
|
|
(1,609 |
) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(164 |
) |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
DECREASE IN CASH
|
|
|
(1,296 |
) |
|
|
(4,694 |
) |
|
|
|
|
|
|
|
|
|
Cash, Beginning of period
|
|
|
7,405 |
|
|
|
25,934 |
|
Cash, End of period
|
|
$ |
6,109 |
|
|
$ |
21,240 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
|
ULTRALIFE CORPORATION AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
|
(In Thousands except share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
in Excess
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
of Par
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
Controlling
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Value
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Stock
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December 31, 2018
|
|
|
20,053,335 |
|
|
$ |
2,005 |
|
|
$ |
182,630 |
|
|
$ |
(2,786 |
) |
|
$ |
(58,035 |
) |
|
$ |
(19,266 |
) |
|
$ |
(85 |
) |
|
$ |
104,463 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425 |
|
|
|
|
|
|
|
24 |
|
|
|
449 |
|
Share repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,957 |
) |
|
|
|
|
|
|
(1,957 |
) |
Stock option exercises
|
|
|
75,427 |
|
|
|
8 |
|
|
|
348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
356 |
|
Stock-based compensation – stock options
|
|
|
|
|
|
|
|
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174 |
|
Stock-based compensation – restricted stock
|
|
|
5,834 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Tax withholdings on restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
(8 |
) |
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
435 |
|
Balance – March 31, 2019
|
|
|
20,134,596 |
|
|
$ |
2,013 |
|
|
$ |
183,163 |
|
|
$ |
(2,351 |
) |
|
$ |
(57,610 |
) |
|
$ |
(21,231 |
) |
|
$ |
(61 |
) |
|
$ |
103,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December 31, 2019
|
|
|
20,268,050 |
|
|
$ |
2,026 |
|
|
$ |
184,292 |
|
|
$ |
(2,531 |
) |
|
$ |
(52,830 |
) |
|
$ |
(21,231 |
) |
|
$ |
24 |
|
|
$ |
109,750 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,059 |
|
|
|
|
|
|
|
15 |
|
|
|
1,074 |
|
Stock option exercises
|
|
|
7,633 |
|
|
|
1 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29 |
|
Stock-based compensation – stock options
|
|
|
|
|
|
|
|
|
|
|
192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192 |
|
Stock-based compensation – restricted stock
|
|
|
5,833 |
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38 |
|
Tax withholdings on restricted stock
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
(7 |
) |
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(807 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(807 |
) |
Balance – March 31, 2020
|
|
|
20,281,516 |
|
|
$ |
2,028 |
|
|
$ |
184,550 |
|
|
$ |
(3,338 |
) |
|
$ |
(51,771 |
) |
|
$ |
(21,239 |
) |
|
$ |
39 |
|
|
$ |
110,269 |
|
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)
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 footnotes 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,
2019.
The December 31, 2019 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.
Effective January 1, 2020, the Company’s interim fiscal periods are
reported on a calendar month-basis to better align with fiscal
period changes of our customer base. Prior to 2020, the Company’s
monthly closing schedule was a 4/4/5 week-based cycle for each
fiscal quarter. We do not believe this change materially impacts
quarterly comparisons.
Recently Adopted Accounting Guidance
Effective January 1, 2020, the Company adopted Accounting Standards
Update (“ASU”) 2017-04, “Intangibles – Goodwill and Other (Topic
350) – Simplifying the Test for Goodwill Impairment”. The new
standard eliminates the two-step process that required the
identification of potential impairment and a separate measure of
the actual impairment. Adoption of the new standard will not
materially impact the Company’s consolidated financial
statements.
Recent Accounting Guidance Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update 2016-13, “Financial Instruments
– Credit Losses (Topic 326) – Measurement of Credit Losses on
Financial Instruments”, which requires entities to measure all
expected credit losses for financial assets held at the reporting
data based on historical experience, current conditions, and
reasonable and supportable forecasts. This replaces the existing
incurred loss model and is applicable to the measurement of credit
losses on financial assets measured at amortized cost. This
guidance is effective for the Company for fiscal years, and interim
periods within those fiscal years, beginning after December 15,
2022. The Company is currently assessing the impact that adopting
this new accounting standard will have on our consolidated
financial statements.
2. SUBSEQUENT
EVENTS
CARES Act Paycheck Protection Program Loan
On April 14, 2020, the Company entered into a loan agreement with
KeyBank National Association (“Lender”) under the terms of which
the Lender agreed to make a loan to the Company in an aggregate
principal amount of $3,459 (“PPP Loan”) pursuant to the Paycheck
Protection Program under the Coronavirus Aid, Relief, and Economic
Security (CARES) Act. The PPP Loan is evidenced by a promissory
note containing the terms and conditions for repayment of the PPP
Loan.
On April 27, 2020, the Company entered into an agreement with the
Lender to repay the PPP loan proceeds of $3,459, which were
received by the Company on April 16, 2020 and not used, to ensure
compliance with the Frequently Asked Questions and revised
guidelines issued by the U.S. Department of Treasury and the Small
Business Administration on April 23, 2020.
3.
ACQUISITION
On May 1, 2019, the Company completed the acquisition of 100% of
the issued and outstanding shares of Southwest Electronic Energy
Corporation, a Texas corporation (“SWE”), for an aggregate purchase
price of $26,190 inclusive of $942 cash acquired and post-closing
adjustments.
SWE is a leading independent designer and manufacturer of
high-performance smart battery systems and battery packs to
customer specifications using lithium cells. SWE serves a variety
of industrial markets, including oil & gas, remote monitoring,
process control and marine, which demand uncompromised safety,
service, reliability and quality. The Company acquired SWE as a
bolt-on acquisition to further support our strategy of commercial
revenue diversification by providing entry to the oil and gas
exploration and production, and subsea electrification markets,
which are currently unserved by Ultralife. Another key benefit
includes obtaining a highly valuable technical team of battery pack
and charger system engineers and technicians to add to our new
product development-based revenue growth initiatives in our
commercial end-markets particularly asset tracking, smart metering
and other industrial applications.
The acquisition of SWE was completed pursuant to a Stock Purchase
Agreement dated May 1, 2019 (the “Stock Purchase Agreement”)
by and among Ultralife, SWE, Southwest Electronic Energy Medical
Research Institute, a Texas non-profit (the “Seller”), and Claude
Leonard Backstein, an individual (the “Shareholder”). The Stock
Purchase Agreement contains customary terms and conditions
including representations, warranties and indemnification
provisions. A portion of the consideration paid to the Seller is
being held in escrow for indemnification purposes.
The aggregate purchase price for the acquisition was funded by the
Company through a combination of cash on hand and borrowings under
the Credit Facilities (see Note 4).
The purchase price allocation was determined in accordance with the
accounting treatment of a business combination pursuant to FASB ASC
Topic 805, Business Combinations (ASC 805). Accordingly, the fair
value of the consideration was determined, and the assets acquired
and liabilities assumed have been recorded at their fair values at
the date of the acquisition. The excess of the purchase price over
the estimated fair values has been recorded as goodwill.
The allocation of purchase price to the assets acquired and
liabilities assumed at the date of the acquisition is presented in
the table below. Management is responsible for determining the fair
value of the tangible and intangible assets acquired and
liabilities assumed as of the date of acquisition. Management
considered several factors, including reference to an analysis
performed under ASC 805 solely for the purpose of allocating the
purchase price to the assets acquired and liabilities assumed. The
Company’s estimates are based upon assumptions believed to be
reasonable, but which are inherently uncertain and unpredictable.
These valuations require the use of management’s assumptions, which
would not reflect unanticipated events and circumstances that may
occur.
Cash
|
|
$ |
942 |
|
Accounts receivable
|
|
|
3,621 |
|
Inventories
|
|
|
4,685 |
|
Other current assets
|
|
|
431 |
|
Property, plant and equipment
|
|
|
9,177 |
|
Goodwill
|
|
|
6,534 |
|
Customer relationships
|
|
|
2,522 |
|
Trade name
|
|
|
1,127 |
|
Accounts payable
|
|
|
(1,060 |
) |
Other current liabilities
|
|
|
(778 |
) |
Deferred tax liability, net
|
|
|
(1,011 |
) |
Net assets acquired
|
|
$ |
26,190 |
|
The goodwill included in the Company’s purchase price allocation
presented above represents the value of SWE’s assembled and trained
workforce, the incremental value that SWE engineering and
technology will bring to the Company and the revenue growth which
is expected to occur over time which is attributable to increased
market penetration from future new products and customers. The
goodwill acquired in connection with the acquisition is not
deductible for income tax purposes.
The operating results and cash flows of SWE are reflected in the
Company’s consolidated financial statements from the date of
acquisition. SWE is included in the Battery & Energy Products
segment.
For the three months ended March 31, 2020, SWE contributed revenue
of $5,437 and net income of $271.
4. CREDIT
FACILITY
On May 1, 2019, Ultralife, SWE, and CLB, INC., a Texas corporation
and wholly owned subsidiary of SWE (“CLB”), as borrowers, entered
into the First Amendment Agreement (the “First Amendment
Agreement”) with KeyBank National Association (“KeyBank” or the
“Bank”), as lender and administrative agent, to amend the Credit
and Security Agreement by and among Ultralife and KeyBank dated May
31, 2017 (the “Credit Agreement”, and together with the First
Amendment Agreement, the “Amended Credit Agreement”).
The Amended Credit Agreement, among other things, provides for a
five-year, $8,000 senior secured term loan (the “Term Loan
Facility”) and extends the term of the $30,000 senior secured
revolving credit facility (the “Revolving Credit Facility”, and
together with the Term Loan Facility, the “Credit Facilities”)
through May 31, 2022. Up to six months prior to May 31, 2022, the
Revolving Credit Facility may be increased to $50,000 with the
Bank’s concurrence.
Upon closing of the SWE acquisition on May 1, 2019, the Company
drew down the full amount of the Term Loan Facility and $6,782
under the Revolving Credit Facility. As of March 31, 2020, the
Company had $6,791 outstanding principal on the Term Loan Facility,
of which $1,467 is included in current portion of long-term debt on
the balance sheet, and $10,182 outstanding principal on the
Revolving Credit Facility. As of March 31, 2020, total unamortized
debt issuance costs of $152 associated with the Amended Credit
Agreement are classified as a reduction of long-term debt on the
balance sheet.
The Company is required to repay the borrowings under the Term Loan
Facility in sixty (60) equal consecutive monthly payments
commencing on May 31, 2019, 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
April 30, 2024. All unpaid principal and accrued and unpaid
interest with respect to the Revolving Credit Facility is due and
payable in full on May 31, 2022. 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 fixed charge coverage
ratio of equal to or greater than 1.15 to 1.0, and a consolidated
senior leverage ratio of equal to or less than 2.5 to 1.0, each as
defined in the Amended Credit Agreement. The Company was in full
compliance with its covenants as of March 31, 2020.
Borrowings under the Credit Facilities are secured by substantially
all the assets of the Company. Availability under the Revolving
Credit Facility is subject to certain borrowing base limits based
on receivables and inventories.
Interest will accrue on outstanding indebtedness under the Credit
Facilities at the Base Rate or the Overnight LIBOR Rate, as
selected by the Company, plus the applicable margin. The Base Rate
is the higher of (a) the Prime Rate, (b) the Federal Funds
Effective Rate plus 50 basis points, and (c) the Overnight LIBOR
Rate plus one hundred basis points. The applicable margin ranges
from zero to negative 50 basis points for the Base Rate and from
185 to 215 basis points for the Overnight LIBOR Rate and are
determined based on the Company’s senior leverage ratio.
The Company must pay a fee of 0.1% to 0.2% based on the average
daily unused availability under the Revolving Credit Facility.
Payments must be made by the Company to the extent borrowings
exceed the maximum amount then permitted to be drawn on the 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.
5. EARNINGS PER
SHARE
Basic earnings per share (“EPS”) is computed by dividing earnings
attributable to the Company’s common shareholders 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 March 31, 2020, 878,408 stock options and 25,833
restricted stock awards were included in the calculation of Diluted
EPS as such securities are dilutive. Inclusion of these securities
resulted in 211,286 additional shares in the calculation of fully
diluted earnings per share. For the comparable three-month period
ended March 31, 2019, 1,052,410 stock options and 11,666 restricted
stock awards were included in the calculation of Diluted EPS
resulting in 484,843 additional shares in the calculation of fully
diluted earnings per share.
There were 653,500 and 448,250 outstanding stock options for the
three-month periods ended March 31, 2020 and March 31, 2019,
respectively, which were not included in EPS as the effect would be
anti-dilutive.
6. SUPPLEMENTAL BALANCE
SHEET INFORMATION
Fair Value Measurements and Disclosures
The fair value of financial instruments approximated their carrying
values at March 31, 2020 and December 31, 2019. The fair
value of cash, trade accounts receivable, trade accounts payable,
accrued liabilities, and the current portion of long-term debt
approximates carrying value due to the short-term nature of these
instruments. The carrying value of long-term debt
approximates fair value, as the variable interest rates approximate
current market rates.
Cash
The composition of the Company’s cash was as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash
|
|
$ |
5,862 |
|
|
$ |
7,135 |
|
Restricted cash
|
|
|
247 |
|
|
|
270 |
|
Total
|
|
$ |
6,109 |
|
|
$ |
7,405 |
|
As of March 31, 2020 and December 31, 2019, restricted cash
included $166 and $188, respectively, relating to a government
grant awarded in the People’s Republic of China to fund specified
technological research and development initiatives. The grant
proceeds are realized to income as a direct offset to expense as
the related expenditures are incurred. For the three-month period
ended March 31, 2020, grant proceeds of $20 were realized to
income. As of March 31, 2020 and December 31, 2019, restricted cash
included euro-denominated deposits of $81 and $82, respectively,
withheld by the Dutch tax authorities and third-party VAT
representatives in connection with a previously utilized logistics
arrangement in the Netherlands. Restricted cash is included as a
component of the cash balance for purposes of the consolidated
statements of cash flows.
Inventories
Inventories are stated at the lower of cost or market, net of
obsolescence reserves, with cost determined under the first-in,
first-out (FIFO) method. The composition of inventories, net
was:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Raw materials
|
|
$ |
18,354 |
|
|
$ |
18,485 |
|
Work in process
|
|
|
3,036 |
|
|
|
2,548 |
|
Finished goods
|
|
|
7,589 |
|
|
|
8,726 |
|
Total
|
|
$ |
28,979 |
|
|
$ |
29,759 |
|
Property, Plant and Equipment, Net
Major classes of property, plant and equipment consisted of the
following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Land
|
|
$ |
1,273 |
|
|
$ |
1,273 |
|
Buildings and leasehold improvements
|
|
|
8,096 |
|
|
|
8,148 |
|
Machinery and equipment
|
|
|
62,239 |
|
|
|
62,562 |
|
Furniture and fixtures
|
|
|
2,105 |
|
|
|
2,112 |
|
Computer hardware and software
|
|
|
6,520 |
|
|
|
6,528 |
|
Construction in process
|
|
|
5,078 |
|
|
|
4,730 |
|
|
|
|
85,311 |
|
|
|
85,353 |
|
Less: Accumulated depreciation
|
|
|
(63,272 |
) |
|
|
(62,828 |
) |
Property, plant and equipment, net
|
|
$ |
22,039 |
|
|
$ |
22,525 |
|
Depreciation expense for property, plant and equipment was $579 and
$447 for the three-month periods ended March 31, 2020 and March 31,
2019, respectively.
Goodwill
The following table summarizes the goodwill activity by segment for
the three-month period ended March 31, 2020.
|
|
Battery &
Energy
|
|
|
Communications
|
|
|
|
|
|
|
|
Products
|
|
|
Systems
|
|
|
Total
|
|
Balance – December 31, 2019
|
|
|
15,260 |
|
|
|
11,493 |
|
|
|
26,753 |
|
Effect of foreign currency translation
|
|
|
(285 |
) |
|
|
- |
|
|
|
(285 |
) |
Balance – March 31, 2020
|
|
$ |
14,975 |
|
|
$ |
11,493 |
|
|
$ |
26,468 |
|
Other Intangible Assets, Net
The composition of other intangible assets was:
|
|
at March 31, 2020
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
Trademarks
|
|
$ |
3,402 |
|
|
$ |
- |
|
|
$ |
3,402 |
|
Customer relationships
|
|
|
8,922 |
|
|
|
4,768 |
|
|
|
4,154 |
|
Patents and technology
|
|
|
5,458 |
|
|
|
4,874 |
|
|
|
584 |
|
Distributor relationships
|
|
|
377 |
|
|
|
377 |
|
|
|
- |
|
Trade name
|
|
|
1,487 |
|
|
|
222 |
|
|
|
1,265 |
|
Total
|
|
$ |
19,646 |
|
|
$ |
10,241 |
|
|
$ |
9,405 |
|
|
|
at December 31, 2019
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
Trademarks
|
|
$ |
3,403 |
|
|
$ |
- |
|
|
$ |
3,403 |
|
Customer relationships
|
|
|
9,080 |
|
|
|
4,721 |
|
|
|
4,359 |
|
Patents and technology
|
|
|
5,521 |
|
|
|
4,869 |
|
|
|
652 |
|
Distributor relationships
|
|
|
377 |
|
|
|
377 |
|
|
|
- |
|
Trade name
|
|
|
1,511 |
|
|
|
204 |
|
|
|
1,307 |
|
Total
|
|
$ |
19,892 |
|
|
$ |
10,171 |
|
|
$ |
9,721 |
|
The change in the cost of total intangible assets from December 31,
2019 to March 31, 2020 is a result of the effect of foreign
currency translations.
Amortization expense for intangible assets was $149 and $92 for the
three-month periods ended March 31, 2020 and March 31, 2019,
respectively. Amortization included in research and development
expenses was $31 and $33 for the three-month periods ended March
31, 2020 and March 31, 2019, respectively. Amortization included in
selling, general and administrative expenses was $118 and $59 for
the three-month periods ended March 31, 2020 and March 31, 2019,
respectively.
7. STOCK-BASED
COMPENSATION
We recorded non-cash stock compensation expense in each period as
follows:
|
|
Three-month period ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Stock options
|
|
$ |
192 |
|
|
$ |
174 |
|
Restricted stock grants
|
|
|
38 |
|
|
|
11 |
|
Total
|
|
$ |
230 |
|
|
$ |
185 |
|
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 March 31, 2020, there was $557 of total unrecognized
compensation cost related to outstanding stock options, which is
expected to be recognized over a weighted average period of 1.0
year.
The following table summarizes stock option activity for the
three-month period ended March 31, 2020:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2020
|
|
|
1,541,792 |
|
|
$ |
6.88 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(7,633 |
) |
|
|
3.75 |
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(4,751 |
) |
|
|
8.12 |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2020
|
|
|
1,529,408 |
|
|
$ |
6.89 |
|
|
|
2.98 |
|
|
$ |
478 |
|
Vested and expected to vest at March 31, 2020
|
|
|
1,438,369 |
|
|
$ |
6.80 |
|
|
|
2.81 |
|
|
$ |
478 |
|
Exercisable at March 31, 2020
|
|
|
1,092,278 |
|
|
$ |
6.29 |
|
|
|
1.89 |
|
|
$ |
478 |
|
Cash received from stock option exercises under our stock-based
compensation plans for the three-month periods ended March 31, 2020
and March 31, 2019 was $29 and $356, respectively.
In April 2019, 20,000 shares of restricted stock were awarded to
certain of our employees at a weighted-average grant date fair
value of $11.12 per share. In January 2018, 17,500 shares of
restricted stock were awarded to certain of our employees at a
weighted-average grant date fair value of $7.16 per share. All
outstanding restricted shares vest in equal annual installments
over three years. Unrecognized compensation cost related to these
restricted shares was $107 at March 31, 2020, which is expected to
be recognized over a weighted average period of 1.9 years.
8. INCOME
TAXES
Our effective tax rate for the three-month periods ended March 31,
2020 and March 31, 2019 was 22.9% and 8.4%, respectively. The
period-over-period change was primarily attributable to discrete
tax benefits realized on disqualifying dispositions of incentive
stock options exercised by employees during the three-month period
ended March 31, 2019.
As of December 31, 2019, we have domestic net operating loss
(“NOL”) carryforwards of $58,400, which expire 2020 thru 2035, and
domestic tax credits of $1,907, which expire 2028 thru 2039,
available to reduce future taxable income. As of March 31, 2020,
Management has concluded it is more likely than not that these
domestic NOL and credit carryforwards will be fully utilized.
As of March 31, 2020, for certain past operations in the U.K., we
continue to report a valuation allowance for NOL carryforwards of
approximately $10,000, nearly all of which can be carried forward
indefinitely. Utilization of the net operating losses may be
limited due to the change in the past U.K. operation and cannot
currently be used to reduce taxable income at our other U.K.
subsidiary, Accutronics Ltd.
As of March 31, 2020, we have not recognized a valuation allowance
against our other foreign deferred tax assets, as realization is
considered to be more likely than not.
As of March 31, 2020, the Company maintains its assertion that all
foreign earnings will be indefinitely reinvested in those
operations.
There were no unrecognized tax benefits related to uncertain tax
positions at March 31, 2020 and December 31, 2019.
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 the years 2000 through 2019 remain subject to
examination by the Internal Revenue Service (“IRS”) due to our net
operating loss carryforwards. Our U.S. tax matters for the years
2000 through 2019 remain subject to examination by various state
and local tax jurisdictions due to our net operating loss
carryforwards. Our tax matters for the years 2010 through 2019
remain subject to examination by the respective foreign tax
jurisdiction authorities.
9. OPERATING
LEASES
The Company has operating leases predominantly for operating
facilities. As of March 31, 2020, the remaining lease terms on our
operating leases range from approximately 1 to 4 years. Renewal
options to extend our leases have been exercised. Termination
options are not reasonably certain of exercise by the Company.
There is no transfer of title or option to purchase the leased
assets upon expiration. There are no residual value guarantees or
material restrictive covenants. In July 2019, the Company entered
into a five-year agreement to extend the operating lease term of
its Shenzhen facility.
The components of lease expense for the current and prior-year
comparative periods were as follows:
|
|
Three-month period ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Operating lease cost
|
|
$ |
168 |
|
|
$ |
145 |
|
Variable lease cost
|
|
|
18 |
|
|
|
21 |
|
Total lease cost
|
|
$ |
186 |
|
|
$ |
166 |
|
Supplemental cash flow information related to leases was as
follows:
|
|
Three-month period ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash paid for amounts included in the measurement of lease
liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$ |
164 |
|
|
$ |
150 |
|
Right-of-use assets obtained in exchange for lease liabilities:
|
|
$ |
- |
|
|
$ |
131 |
|
Supplemental balance sheet information related to leases was as
follows:
|
|
Balance sheet classification
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use asset
|
|
Other noncurrent assets
|
|
$ |
1,685 |
|
|
$ |
1,866 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Current operating lease liability
|
|
Accrued expenses and other current liabilities
|
|
$ |
621 |
|
|
$ |
620 |
|
Operating lease liability, net of current portion
|
|
Other noncurrent liabilities
|
|
|
1,072 |
|
|
|
1,247 |
|
Total operating lease liability
|
|
|
|
$ |
1,693 |
|
|
$ |
1,867 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term (years)
|
|
|
|
|
3.5 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate
|
|
|
|
|
4.5 |
% |
|
|
4.5 |
% |
Future minimum lease payments as of March 31, 2020 are as
follows:
Maturity of Operating Lease Liabilities
|
|
|
|
|
2020
|
|
|
512 |
|
2021
|
|
|
461 |
|
2022
|
|
|
348 |
|
2023
|
|
|
358 |
|
2024
|
|
|
179 |
|
Total lease payments
|
|
|
1,858 |
|
Less: Imputed interest
|
|
|
(165 |
) |
Present value of remaining lease payments
|
|
$ |
1,693 |
|
10. COMMITMENTS AND
CONTINGENCIES
a. Purchase Commitments
As of March 31, 2020, we have made commitments to purchase
approximately $1,253 of production machinery and equipment.
b. 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 three months of 2020 and 2019 were as
follows:
|
|
Three-month period ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accrued warranty obligations – beginning
|
|
$ |
195 |
|
|
$ |
95 |
|
Accruals for warranties issued
|
|
|
27 |
|
|
|
5 |
|
Settlements made
|
|
|
(12 |
) |
|
|
(5 |
) |
Accrued warranty obligations – ending
|
|
$ |
210 |
|
|
$ |
95 |
|
c. 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 that are reasonably possible at this time.
11. 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. 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. 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.
Revenues recognized from prior period performance obligations for
the three-month periods ended March 31, 2020 and 2019 were not
material. Deferred revenue, unbilled revenue and deferred
contract costs recorded on our consolidated balance sheets as of
March 31, 2020 and December 31, 2019 were not material. As of
March 31, 2020 and December 31, 2019, the Company had no
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.
12. BUSINESS SEGMENT
INFORMATION
We report our results in two 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.
The components of segment performance were as follows:
Three-month period
ended March 31, 2020:
|
|
Battery & Energy Products
|
|
|
Communications
Systems
|
|
|
Corporate
|
|
|
Total
|
|
Revenues
|
|
$ |
20,761 |
|
|
$ |
5,053 |
|
|
$ |
- |
|
|
$ |
25,814 |
|
Segment contribution
|
|
|
5,316 |
|
|
|
2,018 |
|
|
|
(5,849 |
) |
|
|
1,485 |
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
(92 |
) |
|
|
(92 |
) |
Tax provision
|
|
|
|
|
|
|
|
|
|
|
(319 |
) |
|
|
(319 |
) |
Non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
(15 |
) |
Net income attributable to Ultralife
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,059 |
|
Three-month period
ended March 31, 2019:
|
|
Battery & Energy Products
|
|
|
Communications
Systems
|
|
|
Corporate
|
|
|
Total
|
|
Revenues
|
|
$ |
15,998 |
|
|
$ |
2,884 |
|
|
$ |
- |
|
|
$ |
18,882 |
|
Segment contribution
|
|
|
4,410 |
|
|
|
674 |
|
|
|
(4,536 |
) |
|
|
548 |
|
Other income
|
|
|
|
|
|
|
|
|
|
|
(58 |
) |
|
|
(58 |
) |
Tax provision
|
|
|
|
|
|
|
|
|
|
|
(41 |
) |
|
|
(41 |
) |
Non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
(24 |
) |
Net income attributable to Ultralife
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
425 |
|
The following tables disaggregate our business segment revenues by
major source and geography.
Commercial and Government/Defense Revenue
Information:
Three-month period ended March 31, 2020:
|
|
Total
Revenue
|
|
|
Commercial
|
|
|
Government/
Defense
|
|
Battery & Energy Products
|
|
$ |
20,761 |
|
|
$ |
14,802 |
|
|
$ |
5,959 |
|
Communications Systems
|
|
|
5,053 |
|
|
|
- |
|
|
|
5,053 |
|
Total
|
|
$ |
25,814 |
|
|
$ |
14,802 |
|
|
$ |
11,012 |
|
|
|
|
|
|
|
|
57 |
% |
|
|
43 |
% |
Three-month period ended March 31, 2019:
|
|
Total
Revenue
|
|
|
Commercial
|
|
|
Government/
Defense
|
|
Battery & Energy Products
|
|
$ |
15,998 |
|
|
$ |
10,010 |
|
|
$ |
5,988 |
|
Communications Systems
|
|
|
2,884 |
|
|
|
- |
|
|
|
2,884 |
|
Total
|
|
$ |
18,882 |
|
|
$ |
10,010 |
|
|
$ |
8,872 |
|
|
|
|
|
|
|
|
53 |
% |
|
|
47 |
% |
U.S. and Non-U.S. Revenue Information1:
Three-month period ended March 31, 2020:
|
|
Total
Revenue
|
|
|
United States
|
|
|
Non-United States
|
|
Battery & Energy Products
|
|
$ |
20,761 |
|
|
$ |
11,284 |
|
|
$ |
9,477 |
|
Communications Systems
|
|
|
5,053 |
|
|
|
4,354 |
|
|
|
699 |
|
Total
|
|
$ |
25,814 |
|
|
$ |
15,638 |
|
|
$ |
10,176 |
|
|
|
|
|
|
|
|
61 |
% |
|
|
39 |
% |
Three-month period ended March 31, 2019:
|
|
Total
Revenue
|
|
|
United States
|
|
|
Non-United States
|
|
Battery & Energy Products
|
|
$ |
15,998 |
|
|
$ |
7,567 |
|
|
$ |
8,431 |
|
Communications Systems
|
|
|
2,884 |
|
|
|
2,454 |
|
|
|
430 |
|
Total
|
|
$ |
18,882 |
|
|
$ |
10,021 |
|
|
$ |
8,861 |
|
|
|
|
|
|
|
|
53 |
% |
|
|
47 |
% |
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, the effects of
the novel coronavirus disease of 2019 (COVID-19); our reliance on
certain key customers; possible future declines in demand for the
products that use our batteries or communications systems; the
unique risks associated with our China operations; potential costs
because of the warranties we supply with our products and services;
potential disruptions in our supply of raw materials and
components; our efforts to develop new commercial applications for
our products; reduced U.S. and foreign military spending including
the uncertainty associated with government budget approvals;
possible breaches in security and other disruptions; variability in
our quarterly and annual results and the price of our common stock;
safety risks, including the risk of fire; our entrance into new
end-markets which could lead to additional financial exposure;
fluctuations in the price of oil and the resulting impact on the
level of downhole drilling; our ability to retain top management
and key personnel; our resources being overwhelmed by our growth
prospects; our inability to comply with changes to the regulations
for the shipment of our products; our customers’ demand falling
short of volume expectations in our supply agreements; possible
impairments of our goodwill and other intangible assets; negative
publicity of Lithium-ion batteries; our exposure to foreign
currency fluctuations; 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; our
ability to utilize our net operating loss carryforwards; exposure
to possible violations of the U.S. Foreign Corrupt Practices Act,
the U.K. Bribery Act or other anti-corruption laws; our ability to
comply with government regulations regarding the use of “conflict
minerals”; possible audits of our contracts by the U.S. and foreign
governments and their respective defense agencies; known and
unknown environmental matters; technological innovations in the
non-rechargeable and rechargeable battery industries; 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,” “estimate,” “seek,” “project,”
“intend,” “plan,” “may,” “will,” “should,” 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, 2019,
and Item 1A, “Risk Factors” in Part II of this Form 10-Q.
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 the development of 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
quarterly report, 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. 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 contained in
this Quarterly Report on Form 10-Q or our Annual Report on Form
10-K for the year ended December 31, 2019 to reflect new
information or risks, future events or other developments.
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes thereto in
Part I, Item 1 of this Form 10-Q, the Risk Factors in Part II, Item
1A of this Form 10-Q, and the Consolidated Financial Statements and
Notes thereto and Risk Factors in our Form 10-K for the year ended
December 31, 2019.
The financial information in this Management’s Discussion and
Analysis of Financial Condition and Results of Operations is
presented in thousands of dollars, except for share and per share
amounts.
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. 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
geographies, 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 international
defense departments. We enjoy strong name recognition in our
markets under our Ultralife®
Batteries, Lithium Power®,
McDowell Research®,
AMTITM,
ABLETM,
ACCUTRONICS™, ACCUPRO™, ENTELLION™, SWE Southwest Electronic Energy
Group™, SWE DRILL-DATA™, and SWE SEASAFE™ brands. 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 12 in the
Notes to Consolidated Financial Statements 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.
COVID-19
The novel coronavirus disease of 2019 (COVID-19) has created
significant economic disruption and uncertainty around the
world. The Company continues to closely monitor the
developments surrounding COVID-19 and take actions to mitigate the
business risks involved. During this challenging time, we
remain focused on ensuring the health and safety of our employees
by implementing the protocols established by public health
officials and meeting the demand of our customers. As an
essential supplier currently exempt from government-mandated
shutdown directives, we are striving to ensure an uninterrupted
flow of our mission critical products serving medical device, first
responder, public safety, energy and national security customers.
We have maintained normal operations at all our facilities with the
exception of an approximately one-month closure of our China
facility as was mandated by the Chinese government through early
March 2020.
For the quarter ended March 31, 2020, our operating results were
adversely affected by COVID-19, particularly as a result of the
temporary shutdown of our China operation and supply chain
disruptions. We estimate the effects of COVID-19 adversely
impacted net income by approximately $500.
Refer to Item 1A “Risk Factors” in Part II of this Form 10-Q for
risks and uncertainties related to COVID-19.
Overview
Consolidated revenues of $25,814 for the three-month period ended
March 31, 2020, increased by $6,932 or 36.7%, over $18,882 during
the three-month period ended March 31, 2019, reflecting the
revenues of SWE, which was acquired by the Company on May 1, 2019,
and higher Communications Systems sales primarily due to shipments
of vehicle amplifier-adaptor systems to support the U.S. Army’s
Network Modernization initiatives under the delivery orders
announced in October 2018.
Gross profit was $7,334, or 28.4% of revenue, compared to $5,084,
or 26.9% of revenue, for the same quarter a year ago. The
150-basis point improvement resulted from efficiencies in the
transition of vehicle amplifier-adaptor systems for the U.S. Army
to higher volume production partially offset by the impact of an
approximately one-month shutdown of our China operation as mandated
by the Chinese government in response to COVID-19.
Operating expenses increased to $5,849 during the three-month
period ended March 31, 2020, compared to $4,536 during the
three-month period ended March 31, 2019. The increase of
$1,313 or 28.9% was attributable to $1,180 of operating expenses
incurred by SWE during the 2020 period, and a $122 or 11.8%
increase in core engineering and technology expenses for new
product development and testing. Operating expenses as a
percentage of sales decreased 130 basis points from 24.0% for the
first quarter of 2019 to 22.7% for the current quarter.
Operating income for the three-month period ended March 31, 2020
was $1,485 or 5.7% of revenues compared to $548 or 2.9% of revenues
for the year-earlier period. The 170.5% increase in operating
income primarily resulted from higher sales in our Communications
Systems business and profitability for SWE.
Net income attributable to Ultralife was $1,059, or $0.07 per share
– basic and diluted, for the three-month period ended March 31,
2020, compared to $425, or $0.03 per share – basic and diluted, for
the three-month period ended March 31, 2019. Adjusted EPS was
$0.08 on a diluted basis for the first quarter of 2020,
representing a 212.4% increase over Adjusted EPS on a diluted basis
of $0.03 for the 2019 period. Adjusted EPS excludes the
provision for deferred income taxes which primarily represents
non-cash charges (benefits) of $242 and ($5) for the 2020 and 2019
periods, respectively, for income taxes which will be fully offset
by deferred tax assets including past U.S. net operating losses and
tax credit carryforwards. See the section “Adjusted EPS” on
Page 23 for a reconciliation of Adjusted EPS to EPS.
Adjusted EBITDA, defined as net income attributable to Ultralife
before net interest expense, provision 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 $2,522 or 9.8% of
revenues in the first quarter of 2020 compared to $1,204 or 6.4% of
revenues for the first quarter of 2019. See the section “Adjusted
EBITDA” on Page 22 for a reconciliation of Adjusted EBITDA to net
income attributable to Ultralife.
With a backlog increasing approximately 20% over year-end 2019 to
over $50 million, ample liquidity, end-market diversity and tight
control over discretionary spending, we are well positioned to both
sustain operations and continue investing in growth
initiatives.
Three-Month Periods Ended March 31, 2020 and March 31,
2019
Revenues. Consolidated revenues for the three-month period
ended March 31, 2020 amounted to $25,814, an increase of $6,932 or
36.7%, over $18,882 for the three-month period ended March 31,
2019. Overall, commercial sales increased 47.9% while
government/defense sales increased 24.1% from the 2019 period.
Revenues for the 2020 period include revenues of SWE which was
acquired by the Company on May 1, 2019.
Battery & Energy Products revenues increased $4,763, or 29.8%,
from $15,998 for the three-month period ended March 31, 2019 to
$20,761 for the three-month period ended March 31, 2020. The
increase was attributable to the $5,437 revenue of SWE partially
offset by a $674 or 4.2% reduction in core sales due primarily to
an approximately one-month shutdown of our China operation and
supply chain disruptions resulting from COVID-19.
Communications Systems revenues increased $2,169, or 75.2%, from
$2,884 during the three-month period ended March 31, 2019 to $5,053
for the three-month period ended March 31, 2020. This increase is
primarily attributable to higher shipments of vehicle
amplifier-adaptor systems to support the U.S. Army’s Network
Modernization initiatives under the delivery orders announced in
October 2018.
Cost of Products Sold / Gross Profit. Cost of products
sold totaled $18,480 for the quarter ended March 31, 2020, an
increase of $4,682, or 33.9%, from the $13,798 reported for the
same three-month period a year ago. Consolidated cost of products
sold as a percentage of total revenue decreased from 73.1% for the
three-month period ended March 31, 2019 to 71.6% for the
three-month period ended March 31, 2020. Correspondingly,
consolidated gross margin increased from 26.9% for the three-month
period ended March 31, 2019, to 28.4% for the three-month period
ended March 31, 2020, primarily reflecting efficiencies in the
transition of vehicle amplifier-adaptor systems for the U.S. Army
to higher volume production and favorable sales mix for our
Communications Systems business. This increase was partially
offset by the impact of an approximately one-month shutdown of our
China operation as mandated by the Chinese government in response
to COVID-19.
For our Battery & Energy Products segment, gross profit for the
first quarter of 2020 was $5,316, an increase of $906 or 20.5% from
gross profit of $4,410 for the first quarter of 2019. Battery &
Energy Products’ gross margin of 25.6% decreased by 200 basis
points from the 27.6% gross margin for the year-earlier period,
reflecting the temporary shutdown of our China operation in
response to COVID-19, as well as the transitioning of new products
to higher volume production.
For our Communications Systems segment, gross profit for the first
quarter of 2020 was $2,018 or 39.9% of revenues, an increase of
$1,344 or 199.4%, from gross profit of $674, or 23.4% of revenues,
for the first quarter of 2019. The 1,650-basis point increase in
gross margin during 2020 is driven by the transition of vehicle
amplifier-adaptor systems for the U.S. Army to higher volume
production and favorable sales mix.
Operating Expenses. Operating expenses for the three-month
period ended March 31, 2020 were $5,849, an increase of $1,313 or
28.9% over the $4,536 for the three-month period ended March 31,
2019. The increase is attributable to $1,180 of operating expense
incurred by SWE during the 2020 period, and a $122 or 11.8%
increase in core engineering and technology expenses for new
product development and testing. Operating expenses as a
percentage of sales decreased 130 basis points from 24.0% for the
first quarter of 2019 to 22.7% for the 2020 first
quarter.
Overall, operating expenses as a percentage of revenues were 22.7%
for the quarter ended March 31, 2020 compared to 24.0% for the
quarter ended March 31, 2019. Amortization expense associated with
intangible assets related to our acquisitions was $149 for the
first quarter of 2020 ($117 in selling, general and administrative
expenses and $32 in research and development costs), including $61
for SWE ($61 in selling, general and administrative expenses),
compared with $92 for the first quarter of 2019 ($59 in selling,
general, and administrative expenses and $33 in research and
development costs). Research and development costs were $1,548 for
the three-month period ended March 31, 2020, an increase of $512 or
49.4%, from $1,036 for the three-months ended March 31, 2019. The
increase is attributable to $390 of research and development costs
incurred by SWE and a $122 increase in core business investments
for new product development and testing. Selling, general, and
administrative expenses increased $801 or 22.9%, to $4,301 for the
first quarter of 2020 from $3,500 for the first quarter of 2019.
The increase is primarily attributable to the acquisition of SWE
which contributed $790 of direct costs, including intangible asset
amortization of $61, for the first quarter of 2020.
Other Expense. Other expense totaled $92 for the three-month
period ended March 31, 2020 compared to $58 for the three-month
period ended March 31, 2019. Interest and financing expense, net of
interest income, increased $169, from $5 for the first quarter of
2019 to $174 for the comparable period in 2020. The increase is due
primarily to the financing for the SWE acquisition. Miscellaneous
income amounted to $82 for the first quarter of 2020 compared with
miscellaneous expense of $53 for the first quarter of 2019,
primarily representing foreign currency gains and losses,
respectively, realized on the translation of U.S.-denominated
transactions and balances of Accutronics (U.K.). The gains realized
in the first quarter of 2020 were attributable to the strengthening
of the U.S dollar to the Pound Sterling by 6.2% (from the beginning
to the end of the quarter), versus losses realized in the
year-earlier period due to a 2.4% weakening of the U.S dollar to
the Pound Sterling.
Income Taxes. The tax provision for the 2020 first quarter
was $319 compared to $41 for the first quarter of 2019. Our
effective tax rate increased to 22.9% for the first quarter of 2020
as compared to 8.4% for the first quarter of 2019, primarily due to
discrete tax benefits realized on disqualifying dispositions of
incentive stock options exercised by employees during the
three-month period ended March 31, 2019. The income tax provision
for the first quarter of 2020 is comprised of a $77 current
provision for taxes expected to be paid on income from our foreign
operations, representing a cash-based effective tax rate of 5.5%,
and a non-cash $242 deferred provision for taxes to be fully offset
by deferred tax assets including past U.S. net operating losses and
tax credit carryforwards which we expect to carryforward to offset
U.S. income taxes for the foreseeable future. See Note 8 in the
Notes to Consolidated Financial Statements of this Form 10-Q for
additional information regarding our income taxes.
Net Income Attributable to Ultralife. Net income
attributable to Ultralife was $1,059, or $0.07 per share – basic
and diluted, for the three-month period ended March 31, 2020,
compared to $425, or $0.03 per share – basic and diluted, for the
three-month period ended March 31, 2019. Adjusted EPS was $0.08 on
a diluted basis for the first quarter of 2020, representing a
212.4% increase over Adjusted EPS on a diluted basis of $0.03 for
the 2019 period. Adjusted EPS excludes the provision for deferred
income taxes which represents non-cash charges (benefits) of $242
and ($5) for the 2020 and 2019 periods, respectively, for income
taxes which will be fully offset by deferred tax assets including
past U.S. net operating losses and tax credit carryforwards. See
the section “Adjusted EPS” on Page 23 for a reconciliation of
Adjusted EPS to EPS. Average weighted common shares outstanding
used to compute diluted earnings per share decreased from
16,224,790 in the first quarter of 2019 to 16,086,744 in the first
quarter of 2020. The decrease in 2020 is attributable to stock
option exercises since the first quarter of 2019 and a decrease in
the weighted average stock price used to compute diluted shares
from $9.40 for the first quarter of 2019 to $6.71 for the first
quarter of 2020.
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
attributable to Ultralife before interest expense, provision
(benefit) for income taxes, depreciation and amortization, and
stock-based compensation expense. We also use Adjusted EBITDA as a
supplemental measure to review and assess our operating performance
and to enhance comparability between periods. We also 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
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. We believe that Adjusted EBITDA permits a
comparative assessment of our operating performance, relative to
our performance based on our GAAP results, while isolating 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, 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 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:
|
●
|
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;
|
|
●
|
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;
|
|
●
|
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
|
|
●
|
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.
Adjusted EBITDA is calculated as follows for the periods
presented:
|
|
Three-month period
ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Ultralife
|
|
$ |
1,059 |
|
|
$ |
425 |
|
Add:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
174 |
|
|
|
5 |
|
Income tax provision
|
|
|
319 |
|
|
|
41 |
|
Depreciation expense
|
|
|
579 |
|
|
|
447 |
|
Amortization of intangible assets and financing fees
|
|
|
161 |
|
|
|
101 |
|
Stock-based compensation expense
|
|
|
230 |
|
|
|
185 |
|
Adjusted EBITDA
|
|
$ |
2,522 |
|
|
$ |
1,204 |
|
Adjusted EPS
In evaluating our business, we consider and use Adjusted EPS, a
non-GAAP financial measure, as a supplemental measure of our
business performance in addition to GAAP financial measures. We
define Adjusted EPS as net income attributable to Ultralife
Corporation excluding the provision for deferred 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 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.
Adjusted EPS is calculated as follows for the periods
presented:
|
|
Three-month period ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
|
|
Amount
|
|
|
Per Basic Share
|
|
|
Per Diluted Share
|
|
|
Amount
|
|
|
Per Basic Share
|
|
|
Per Diluted Share
|
|
Net income attributable to Ultralife Corporation
|
|
$ |
1,059 |
|
|
$ |
.07 |
|
|
$ |
.07 |
|
|
$ |
425 |
|
|
$ |
.03 |
|
|
$ |
.03 |
|
Deferred tax provision
|
|
|
242 |
|
|
|
.01 |
|
|
|
.01 |
|
|
|
(5 |
) |
|
|
- |
|
|
|
- |
|
Adjusted net income attributable to Ultralife Corporation
|
|
$ |
1,301 |
|
|
$ |
.08 |
|
|
$ |
.08 |
|
|
$ |
420 |
|
|
$ |
.03 |
|
|
$ |
.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
15,875 |
|
|
|
16,087 |
|
|
|
|
|
|
|
15,740 |
|
|
|
16,225 |
|
Liquidity and Capital Resources
As of March 31, 2020, cash totaled $6,109, a decrease of $1,296 as
compared to $7,405 of cash held at December 31, 2019, primarily
driven by an increase in accounts receivable due to the timing of
shipments and collections, and strategic capital investments for
our Battery & Energy Products business.
During the three-month period ended March 31, 2020, net cash of
$365 was used in operations, driven by a $5,764 increase in
accounts receivable primarily relating to the timing of collections
attributable to the large government and defense program awards
announced in October 2018 for our Communications Systems
business. Cash used in operations was largely offset by net
income of $1,074, non-cash expenses (depreciation, amortization,
stock-based compensation and deferred taxes) totaling $1,212, and a
decrease in other working capital of $3,113 primarily driven by an
increase in accounts payable.
Cash used in investing activities for the three months ended March
31, 2020 was $445, which included $565 for capital expenditures
primarily for investment in automation equipment for our Battery
& Energy Products business, including 3-Volt cell and thionyl
chloride cell production.
Net cash used by financing activities for the three-months ended
March 31, 2020 was $322, consisting of $343 of principle payments
against our term loan used to fund the acquisition of SWE partially
offset primarily by stock option exercise proceeds of $29.
As of March 31, 2020, the Company has significant U.S. net
operating loss carryforwards available to utilize as an offset to
future taxable income. See Note 8 in the Notes to Consolidated
Financial Statements of this Form 10-Q for additional
information.
As of March 31, 2020, we had made commitments to purchase
approximately $1,253 of production machinery and equipment
globally. We are also investing approximately $1 million in the
second quarter 2020 for additional test equipment to meet the
increased demand for our power supplies for ventilators,
respirators and infusion pumps.
While the COVID-19 pandemic poses a high level of uncertainty,
Management expects that cash flow generated from future operations,
the collection of accounts receivable for the large government and
defense award shipments relating to our Communications Systems
business and the remaining availability under our Revolving Credit
Facility will be sufficient to meet our general funding
requirements and capital investments for the foreseeable
future.
Debt Commitments
On May 1, 2019, in connection with financing the SWE acquisition
(see Note 4 to the Notes to Consolidated Financial Statements
of this Form 10-Q), the Company drew down $8,000 on its Term Loan
Facility and $6,782 under its Revolving Credit Facility. As of
March 31, 2020, the Company had $6,791 outstanding principal on the
Term Loan Facility, of which $1,467 is included in current portion
of long-term debt on the balance sheet, and $10,182 outstanding
principal on the Revolving Credit Facility. As of March 31, 2020,
the Company is in full compliance with all covenants under the
Credit Facilities.
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 U.S. 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 (“Summary of
Operations and Significant Accounting Policies”) to our
Consolidated Financial Statements in our 2019 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 quarter of 2020, 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 1A. Risk Factors
As a smaller reporting company, we are not required to provide the
information required by this Item.
Investors should carefully consider the risk factor set forth below
in addition to the risk factors described in Part I, Item 1A “Risk
Factors” of our Annual Report on Form 10-K for the year ended
December 31, 2019, which could adversely affect our business,
financial condition and results of operations. Additional risks and
uncertainties not currently known to us or that are not currently
believed by us to be material may also harm our business, financial
condition and operating results.
Our business, operating results and financial condition may be
adversely impacted by COVID-19.
The novel coronavirus disease of 2019 (COVID-19) has created
significant economic disruption and uncertainty around the
world. COVID-19 adversely impacted our operating results in
the first quarter of 2020 primarily as a result of an approximately
one-month closure of our China facility as mandated by the China
government and supply chain disruptions. While the Chinese
government has lifted the suspension of business operations in
China and we have maintained normal business operations at all our
other facilities, the extent to which COVID-19 may impact our
business is uncertain and will depend on many evolving factors
which we continue to monitor but cannot predict, including the
duration and scope of the pandemic and actions taken by
governments, businesses and individuals in response to the
pandemic. Potential effects of COVID-19 which may adversely
impact our business include limited availability and/or increased
cost of raw materials and components used in our products, reduced
demand and/or pricing for our products, inability of our customers
to pay or remain solvent, reduced availability of our workforce,
and increased cyber threats to our information technology
infrastructure. Prolonged adverse effects of COVID-19 on our
business could result in the impairment of long-lived assets
including goodwill and other intangible assets. While we
continue to closely monitor the developments surrounding COVID-19
and take actions to mitigate the business risks involved, the
potential effects of COVID-19 on our business, alone or taken
together, pose material risk to our future operating results and
financial condition.
Item 6. Exhibits
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.
|
|
ULTRALIFE CORPORATION
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
Date: April 30, 2020
|
By: /s/ Michael D. Popielec
|
|
|
|
Michael D. Popielec
|
|
|
|
President and Chief Executive Officer
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
Date: April 30, 2020
|
By: /s/ Philip A. Fain
|
|
|
|
Philip A. Fain
|
|
|
|
Chief Financial Officer and Treasurer
|
|
|
|
(Principal Financial Officer and
|
|
|
|
Principal Accounting Officer)
|
|
Index to Exhibits
|
31.1
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
101.INS
|
XBRL Instance Document
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
XBRL Taxonomy Calculation Linkbase Document
|
|
101.LAB
|
XBRL Taxonomy Label Linkbase Document
|
|
101.PRE
|
XBRL Taxonomy Presentation Linkbase Document
|
|
101.DEF
|
XBRL Taxonomy Definition Document
|
Ultralife (NASDAQ:ULBI)
Historical Stock Chart
From Dec 2020 to Jan 2021
Ultralife (NASDAQ:ULBI)
Historical Stock Chart
From Jan 2020 to Jan 2021