Ultralife(ULBI) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements The consolidated financial statements for Q1 2019 report $18.9 million in revenues and $0.4 million in net income, a significant decline from the prior year Consolidated Statement of Income Highlights (Q1 2019 vs Q1 2018) | Metric | Q1 2019 (ended Mar 31) ($ thousands) | Q1 2018 (ended Apr 1) ($ thousands) | Change | | :--- | :--- | :--- | :--- | | Revenues | $18,882 | $23,069 | -18.1% | | Gross Profit | $5,084 | $7,282 | -30.2% | | Operating Income | $548 | $2,356 | -76.7% | | Net Income Attributable to Ultralife | $425 | $2,151 | -80.2% | | Diluted EPS | $0.03 | $0.13 | -76.9% | Consolidated Balance Sheet Highlights (As of Mar 31, 2019) | Account | March 31, 2019 ($ thousands) | December 31, 2018 ($ thousands) | | :--- | :--- | :--- | | Cash | $21,240 | $25,934 | | Total Current Assets | $65,481 | $67,160 | | Total Assets | $120,951 | $120,848 | | Total Current Liabilities | $15,996 | $15,386 | | Total Liabilities | $17,028 | $16,385 | | Total Shareholders' Equity | $103,923 | $104,463 | Consolidated Statement of Cash Flows Highlights (Q1 2019 vs Q1 2018) | Cash Flow Activity | Q1 2019 (ended Mar 31) ($ thousands) | Q1 2018 (ended Apr 1) ($ thousands) | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | ($545) | ($921) | | Net Cash Used In Investing Activities | ($2,581) | ($172) | | Net Cash (Used In) Provided By Financing Activities | ($1,609) | $939 | | Decrease in Cash | ($4,694) | - | Notes to Consolidated Financial Statements Detailed notes disclose the adoption of ASC 842, the $25.0 million acquisition of SWE, credit facility amendments, and segment performance - On May 1, 2019, the company completed the acquisition of Southwest Electronic Energy Corporation ("SWE") for an aggregate purchase price of $25.0 million in cash, intended to support commercial revenue diversification, particularly in the oil & gas and subsea electrification markets[32][33] - To fund the SWE acquisition, on May 1, 2019, the company amended its credit agreement to include a five-year, $8.0 million senior secured term loan and extended its $30.0 million senior secured revolving credit facility through May 31, 2022[39][40] - During Q1 2019, the company repurchased 267,300 shares of its common stock for an aggregate consideration of $1.957 million under its Share Repurchase Program[51] Segment Performance (Q1 2019 vs Q1 2018) | Segment | Metric | Q1 2019 ($ thousands) | Q1 2018 ($ thousands) | | :--- | :--- | :--- | :--- | | Battery & Energy Products | Revenues | $15,998 | $17,224 | | | Segment Contribution | $4,410 | $5,036 | | Communications Systems | Revenues | $2,884 | $5,845 | | | Segment Contribution | $674 | $2,246 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a challenging Q1, with consolidated revenues decreasing 18.1% to $18.9 million and gross margin compressing to 26.9% Results of Operations Consolidated revenues decreased 18.1% to $18.9 million, with Battery & Energy Products down 7.1% and Communications Systems down 50.7%, impacting gross margin - Battery & Energy Products revenues decreased 7.1% due to a 21.2% drop in government and defense sales, partially offset by a 4.0% increase in commercial revenues, led by medical customers[103] - Communications Systems revenues decreased 50.7% due to the timing of shipments, transitioning from a large Q1 2018 contract to initial production for new U.S. Army Network Modernization orders in Q1 2019[104] - Consolidated gross margin fell to 26.9% from 31.6% in the prior year, primarily due to unfavorable sales mix and costs incurred to commence initial production for large Communications Systems program awards[105] Adjusted EBITDA (Non-GAAP Measure) Adjusted EBITDA, a non-GAAP measure, significantly decreased to $1.2 million (6.4% of revenues) in Q1 2019 from $3.0 million in Q1 2018 Reconciliation of Net Income to Adjusted EBITDA | Line Item | Q1 2019 ($ thousands) | Q1 2018 ($ thousands) | | :--- | :--- | :--- | | Net Income Attributable to Ultralife | $425 | $2,151 | | Interest and Financing Expense, Net | $5 | $33 | | Income Tax Provision | $41 | $55 | | Depreciation Expense | $447 | $484 | | Amortization of Intangible Assets and Financing Fees | $101 | $111 | | Stock-Based Compensation Expense | $185 | $139 | | Adjusted EBITDA | $1,204 | $2,973 | Liquidity and Capital Resources Cash decreased by $4.7 million to $21.2 million as of March 31, 2019, primarily due to inventory build-up, capital expenditures, and share repurchases - Cash decreased by $4.7 million during Q1 2019, from $25.9 million to $21.2 million[121] - Key uses of cash during the quarter included[122][123] - A $5.0 million increase in inventory, primarily for Communications Systems program awards - $2.6 million in capital expenditures, mainly for automation equipment in the Battery & Energy Products business - $2.0 million for common stock repurchases Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[130] - No changes occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[131] PART II. OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activity, with 267,300 shares repurchased in Q1 2019, leaving 2.1 million shares authorized for repurchase Share Repurchases in Q1 2019 | Period | Total Number of Shares Purchased | Weighted Average Price Paid Per Share ($) | Maximum Shares Remaining for Purchase (shares) | | :--- | :--- | :--- | :--- | | January 2019 | 267,100 | $7.29 | 2,127,226 | | February 2019 | 200 | $7.49 | 2,127,026 | | March 2019 | - | - | 2,127,026 | | Total Q1 | 267,300 | | | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL interactive data files - The exhibits filed with this report include CEO/CFO certifications and XBRL data files[137]