Ultralife(ULBI) - 2021 Q4 - Annual Report

Part I Item 1. Business Ultralife Corporation designs and manufactures power and communications systems for government, defense, and commercial sectors globally - The company operates through two segments: Battery & Energy Products and Communications Systems, with performance reported at the gross profit level for each segment and operating expenses as Corporate charges[20] - On December 13, 2021, the company acquired Excell Battery Group to diversify commercial revenue and expand into new industrial markets like downhole drilling and medical devices[38] Products, Services and Technology The company's product portfolio includes lithium-based non-rechargeable and rechargeable batteries, charging systems, and military-grade RF amplifiers and integrated communication equipment - Battery & Energy Products include non-rechargeable lithium batteries (Li-MnO2, Li-CFx/MnO2, Li-SOCl2) and rechargeable Lithium-ion and Nickel Metal Hydride (NiMH) batteries and charging systems[21][22] - Communications Systems products, sold under McDowell Research and AMTI brands, include RF amplifiers, power supplies, vehicle amplifier-adaptors (VAA), and integrated systems for military applications[53][54][55] Sales and Marketing Ultralife employs a multi-channel sales strategy, with significant revenue from government contracts and a major defense contractor, leading to increased order backlog - A single major customer, L3Harris Technologies, accounted for 20% of total revenues in 2021 and 17% in 2020[61] Sales by Region (FY 2020-2021) | Region | 2021 Sales (in thousands) | 2020 Sales (in thousands) | | :--- | :--- | :--- | | U.S. Customers | $48,819 | $62,255 | | Foreign Customers | $49,448 | $45,457 | Order Backlog by Segment (as of Dec 31) | Segment | 2021 Backlog (in thousands) | 2020 Backlog (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Battery & Energy Products | $55,300 | $34,600 | +60% | | Communications Systems | $8,000 | $4,700 | +70% | Manufacturing and Raw Materials The company operates ISO-certified manufacturing facilities globally, facing supply chain risks from single-source suppliers, which impacted 2021 shipments and increased inventory - The company has ISO 9001 and/or ISO 13485 certified manufacturing facilities across North America, Europe, and Asia[78][79] - Reliance on single or limited sources for certain raw materials led to shipment delays in 2021[82] Inventory Levels by Segment (as of Dec 31) | Segment | 2021 Inventory (in thousands) | 2020 Inventory (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Battery & Energy Products | $25,677 | $20,714 | +24% | | Communications Systems | $7,512 | $7,479 | +0.4% | Research and Development Ultralife significantly invests in R&D, with expenditures totaling $8.0 million in 2021, and anticipates future increases to support new product initiatives R&D Expenditures (FY 2020-2021) | Category | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Total R&D Expense | $8,042 | $7,316 | | Customer Sponsored R&D | $1,216 | $1,369 | - Future R&D expenditures are expected to increase by 10% or more over 2021 levels, driven by new battery and power solution development and Communications Systems initiatives[90] Item 1A. Risk Factors The company faces multiple risks including COVID-19 impacts, customer concentration, military spending dependency, China operations, and supply chain disruptions - The COVID-19 pandemic negatively impacted 2021 operating results, with an estimated $11.0 million reduction in sales and $4.5 million in operating profit due to supply chain disruptions[117] - A significant portion of revenue is derived from key customers, with L3Harris Technologies comprising 20% of total revenues in 2021[119] - The company is highly dependent on U.S. and foreign military spending, which constituted 35% of revenues in 2021 and 42% in 2020[121] - Operations in China are subject to unique risks, including regulatory changes, tariffs, trade restrictions, and potential disruptions from civil unrest or health crises[124] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments - None[166] Item 2. Properties Ultralife owns facilities in New York and Texas, and leases multiple global locations for its Battery & Energy Products and Communications Systems segments - The company owns facilities in Newark, NY (approx. 250,000 sq ft) and Missouri City, TX (69,000 sq ft)[167] - Leased facilities include locations in Shenzhen, China (approx. 97,000 sq ft), the United Kingdom (approx. 25,000 sq ft), Canada/US for Excell (approx. 30,000 sq ft), and Virginia Beach, VA (approx. 32,500 sq ft)[167] Item 3. Legal Proceedings Ultralife received a $1.593 million settlement in 2020 from a lithium-ion batteries antitrust lawsuit, with no other material adverse legal matters identified - The company recognized a gain of $1.593 million in 2020 from a settlement in the "In Re: Lithium-ion Batteries Antitrust Litigation" class action lawsuit, with funds collected in January 2021[168] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[170] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Ultralife's common stock trades on NASDAQ under 'ULBI', with no history or future plans for cash dividends, as earnings are retained for operations and expansion - The company's common stock is listed on the NASDAQ Global Market under the symbol 'ULBI'[173] - The company has never declared or paid cash dividends and does not anticipate paying any in the foreseeable future, intending to retain earnings for financing future operations[175] Item 6. [RESERVED] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated revenues decreased 8.8% to $98.3 million in 2021, leading to a net loss of $0.2 million, primarily due to lower defense sales and supply chain disruptions, despite solid liquidity - For 2021, the company estimates that COVID-19 had a net negative impact of approximately $11.0 million on sales and $4.5 million on operating income[188] Consolidated Results of Operations (FY 2020-2021) | Metric (in thousands) | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $98,267 | $107,712 | (8.8%) | | Gross Profit | $24,642 | $29,159 | (15.5%) | | Operating Income | $35 | $5,701 | (99.4%) | | Net (Loss) Income Attributable to Ultralife | $(234) | $5,232 | N/A | | Diluted EPS | $(0.01) | $0.33 | N/A | - The decrease in government and defense sales was primarily due to the fulfillment of two large 2020 orders: a $4.875 million order for BA-5390 batteries and a $5.680 million order for vehicle amplifier-adaptor systems[190] - The company's liquidity remains solid, with cash on hand of $8.4 million, working capital of $47.6 million, and a current ratio of 3.5 as of December 31, 2021[197] Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Ultralife is not required to provide this information - The company is not required to provide this information as it qualifies as a smaller reporting company[247] Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2021 and 2020, including balance sheets, cash flows, and notes on accounting policies and the Excell acquisition Consolidated Balance Sheet Highlights (as of Dec 31) | Metric (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total Assets | $159,538 | $137,701 | | Total Liabilities | $41,795 | $20,778 | | Total Shareholders' Equity | $117,743 | $116,923 | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31) | Metric (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,325 | $21,720 | | Net cash used in investing activities | $(26,333) | $(2,981) | | Net cash provided by (used in) financing activities | $19,642 | $(15,694) | - The acquisition of Excell on December 13, 2021, for a net purchase price of $23.5 million, was a major investing activity funded by cash and new debt facilities[315][222] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[394] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, excluding the recently acquired Excell business - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2021[395] - Management assessed internal control over financial reporting as effective, excluding the recently acquired Excell business from the scope of the assessment[398][399] Item 9B. Other Information The company reports no other information for this item - None[401] Part III Item 10. Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's 2022 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the Proxy Statement[405] Item 11. Executive Compensation Information for this item is incorporated by reference from the company's 2022 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the Proxy Statement[406] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference, detailing equity compensation plan data including 1.3 million securities for outstanding options Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 1,306,824 | $6.87 | 941,986 | | Equity compensation plans not approved by security holders | - | - | - | | Total | 1,306,824 | $6.87 | 941,986 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's 2022 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the Proxy Statement[410] Item 14. Principal Accountant Fees and Services Information for this item is incorporated by reference from the company's 2022 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the Proxy Statement[411] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists all financial statements and exhibits filed with the report, including key agreements and certifications - This section lists all financial statements, schedules, and exhibits filed with the report[412][413]