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 September 30, 2021
2022
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 ( (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 fileFile 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 October 26, 2021,24, 2022, the registrant had 16,080,74916,133,618 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 September 30, | 1 | |
Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the Three and Nine-Month Periods Ended September 30, | 2 | |
Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, | 3 | |
Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine-Month Periods Ended September 30, | 4 | |
Notes to Consolidated Financial Statements | 5 | |
Item 2. |
|
|
Item 4. | Controls and Procedures |
|
PART II. | OTHER INFORMATION | |
Item 1A. | Risk Factors | 30 |
Item 6. | Exhibits |
|
Signatures |
| |
PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
ULTRALIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands except share amounts) (Unaudited) |
September 30, | December 31, | |||||||||||||||
2021 | 2020 | September 30, 2022 | December 31, | |||||||||||||
ASSETS | ASSETS | |||||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 15,853 | $ | 10,653 | $ | 5,051 | $ | 8,413 | ||||||||
Trade accounts receivable, net of allowance for doubtful accounts of $334 and $317, respectively | 16,235 | 21,054 | ||||||||||||||
Trade accounts receivable, net of allowance for doubtful accounts of $305 and $346, respectively | 26,876 | 20,232 | ||||||||||||||
Inventories, net | 28,179 | 28,193 | 40,769 | 33,189 | ||||||||||||
Prepaid expenses and other current assets | 4,271 | 4,596 | 6,241 | 4,690 | ||||||||||||
Total current assets | 64,538 | 64,496 | 78,937 | 66,524 | ||||||||||||
Property, plant and equipment, net | 23,035 | 22,850 | 21,898 | 23,205 | ||||||||||||
Goodwill | 26,998 | 27,018 | 37,066 | 38,068 | ||||||||||||
Other intangible assets, net | 8,725 | 9,209 | 16,095 | 17,390 | ||||||||||||
Deferred income taxes, net | 11,700 | 11,836 | 11,963 | 11,472 | ||||||||||||
Other noncurrent assets | 1,816 | 2,292 | 1,981 | 2,879 | ||||||||||||
Total Assets | $ | 136,812 | $ | 137,701 | ||||||||||||
Total assets | $ | 167,940 | $ | 159,538 | ||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 9,206 | $ | 10,839 | $ | 15,827 | $ | 9,823 | ||||||||
Current portion of long-term debt | 253 | 1,361 | 2,000 | 2,000 | ||||||||||||
Accrued compensation and related benefits | 1,153 | 1,748 | 2,000 | 1,842 | ||||||||||||
Accrued expenses and other current liabilities | 6,076 | 4,758 | 8,254 | 5,259 | ||||||||||||
Total current liabilities | 16,688 | 18,706 | 28,081 | 18,924 | ||||||||||||
Long-term debt, net | 20,874 | 18,857 | ||||||||||||||
Deferred income taxes | 475 | 515 | 1,996 | 2,254 | ||||||||||||
Other noncurrent liabilities | 1,103 | 1,557 | 1,673 | 1,760 | ||||||||||||
Total liabilities | 18,266 | 20,778 | 52,624 | 41,795 | ||||||||||||
Commitments and contingencies (Note 8) | ||||||||||||||||
Commitments and contingencies (Note 9) | ||||||||||||||||
Stockholders' equity: | ||||||||||||||||
Preferred stock – par value $.10 per share; authorized 1,000,000 shares; none issued | 0 | 0 | ||||||||||||||
Common stock – par value $.10 per share; authorized 40,000,000 shares; issued – 20,513,344 shares at September 30, 2021 and 20,373,519 shares at December 31, 2020; outstanding – 16,080,749 shares at September 30, 2021 and 15,959,984 shares at December 31, 2020 | 2,051 | 2,037 | ||||||||||||||
Stockholders’ 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 – 20,568,210 shares at September 30, 2022 and 20,522,427 shares at December 31, 2021; outstanding – 16,133,618 shares at September 30, 2022 and 16,089,832 shares at December 31, 2021 | 2,057 | 2,052 | ||||||||||||||
Capital in excess of par value | 186,360 | 185,464 | 187,181 | 186,518 | ||||||||||||
Accumulated deficit | (46,701 | ) | (47,598 | ) | (47,727 | ) | (47,832 | ) | ||||||||
Accumulated other comprehensive loss | (1,819 | ) | (1,782 | ) | (4,842 | ) | (1,653 | ) | ||||||||
Treasury stock - at cost; 4,432,595 shares at September 30, 2021 and 4,413,535 shares at December 31, 2020 | (21,469 | ) | (21,321 | ) | ||||||||||||
Treasury stock - at cost; 4,434,592 shares at September 30, 2022 and 4,432,595 shares at December 31, 2021 | (21,480 | ) | (21,469 | ) | ||||||||||||
Total Ultralife Corporation equity | 118,422 | 116,800 | 115,189 | 117,616 | ||||||||||||
Non-controlling interest | 124 | 123 | 127 | 127 | ||||||||||||
Total stockholders’ equity | 118,546 | 116,923 | 115,316 | 117,743 | ||||||||||||
Total liabilities and stockholders' equity | $ | 136,812 | $ | 137,701 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 167,940 | $ | 159,538 |
The accompanying notes are an integral part of these consolidated financial statements.
ULTRALIFE CORPORATION AND SUBSIDIARIES | |||||||
CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME | |||||||
(In thousands except per share amounts) | |||||||
(Unaudited) |
Three-month period ended | Nine-month period ended | Three-month period ended | Nine-month period ended | |||||||||||||||||||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||
Revenues | $ | 21,761 | $ | 24,362 | $ | 74,504 | $ | 78,736 | $ | 33,234 | $ | 21,761 | $ | 95,733 | $ | 74,504 | ||||||||||||||||
Cost of products sold | 16,653 | 17,851 | 55,151 | 56,928 | 26,519 | 16,653 | 74,414 | 55,151 | ||||||||||||||||||||||||
Gross profit | 5,108 | 6,511 | 19,353 | 21,808 | 6,715 | 5,108 | 21,319 | 19,353 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Research and development | 1,723 | 1,606 | 5,223 | 4,429 | 1,896 | 1,723 | 5,425 | 5,223 | ||||||||||||||||||||||||
Selling, general and administrative | 4,164 | 4,198 | 12,866 | 12,893 | 5,405 | 4,164 | 15,982 | 12,866 | ||||||||||||||||||||||||
Total operating expenses | 5,887 | 5,804 | 18,089 | 17,322 | 7,301 | 5,887 | 21,407 | 18,089 | ||||||||||||||||||||||||
Operating (loss) income | (779 | ) | 707 | 1,264 | 4,486 | (586 | ) | (779 | ) | (88 | ) | 1,264 | ||||||||||||||||||||
Other (income) expense: | ||||||||||||||||||||||||||||||||
Interest and financing expense | 53 | 92 | 164 | 372 | 272 | 53 | 583 | 164 | ||||||||||||||||||||||||
Miscellaneous | (54 | ) | (39 | ) | (88 | ) | (110 | ) | (526 | ) | (54 | ) | (605 | ) | (88 | ) | ||||||||||||||||
Total other (income) expense | (1 | ) | 53 | 76 | 262 | (254 | ) | (1 | ) | (22 | ) | 76 | ||||||||||||||||||||
(Loss) income before income tax (benefit) provision | (778 | ) | 654 | 1,188 | 4,224 | |||||||||||||||||||||||||||
(Loss) income before income taxes | (332 | ) | (778 | ) | (66 | ) | 1,188 | |||||||||||||||||||||||||
Income tax (benefit) provision | (175 | ) | 192 | 290 | 1,010 | (90 | ) | (175 | ) | (171 | ) | 290 | ||||||||||||||||||||
Net (loss) income | (603 | ) | 462 | 898 | 3,214 | (242 | ) | (603 | ) | 105 | 898 | |||||||||||||||||||||
Net (loss) income attributable to non-controlling interest | (18 | ) | 55 | 1 | 90 | (3 | ) | (18 | ) | - | 1 | |||||||||||||||||||||
Net (loss) income attributable to Ultralife Corporation | (585 | ) | 407 | 897 | 3,124 | (239 | ) | (585 | ) | 105 | 897 | |||||||||||||||||||||
Other comprehensive (loss) income: | ||||||||||||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (233 | ) | 677 | (37 | ) | (88 | ) | (1,691 | ) | (233 | ) | (3,189 | ) | (37 | ) | |||||||||||||||||
Comprehensive (loss) income attributable to Ultralife Corporation | $ | (818 | ) | $ | 1,084 | $ | 860 | $ | 3,036 | $ | (1,930 | ) | $ | (818 | ) | $ | (3,084 | ) | $ | 860 | ||||||||||||
Net (loss) income per share attributable to Ultralife common stockholders – basic | $ | (.04 | ) | $ | .03 | $ | .06 | $ | .20 | $ | (.01 | ) | $ | (.04 | ) | $ | .01 | $ | .06 | |||||||||||||
Net (loss) income per share attributable to Ultralife common stockholders – diluted | $ | (.04 | ) | $ | .03 | $ | .06 | $ | .19 | $ | (.01 | ) | $ | (.04 | ) | $ | .01 | $ | .06 | |||||||||||||
Weighted average shares outstanding – basic | 16,065 | 15,908 | 16,020 | 15,889 | 16,133 | 16,065 | 16,122 | 16,020 | ||||||||||||||||||||||||
Potential common shares | 0 | 181 | 180 | 214 | - | - | 22 | 180 | ||||||||||||||||||||||||
Weighted average shares outstanding - diluted | 16,065 | 16,089 | 16,200 | 16,103 | 16,133 | 16,065 | 16,144 | 16,200 |
The accompanying notes are an integral part of these consolidated financial statements.
ULTRALIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in (Unaudited) |
Nine-month period ended | Nine-month period ended | |||||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2022 | September 30, 2021 | |||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Net income | $ | 898 | $ | 3,214 | $ | 105 | $ | 898 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||||||||||
Depreciation | 2,160 | 1,743 | 2,450 | 2,160 | ||||||||||||
Amortization of intangible assets | 458 | 444 | 969 | 458 | ||||||||||||
Amortization of financing fees | 78 | 36 | 25 | 78 | ||||||||||||
Stock-based compensation | 512 | 756 | 552 | 512 | ||||||||||||
Deferred income taxes | 127 | 821 | (683 | ) | 127 | |||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | 4,814 | 15,094 | (7,433 | ) | 4,814 | |||||||||||
Inventories | 17 | 13 | (8,714 | ) | 17 | |||||||||||
Prepaid expenses and other assets | 775 | (84 | ) | (1,004 | ) | 775 | ||||||||||
Accounts payable and other liabilities | (1,377 | ) | (546 | ) | 9,906 | (1,377 | ) | |||||||||
Net cash provided by operating activities | 8,462 | 21,491 | ||||||||||||||
Net cash (used in) provided by operating activities | (3,827 | ) | 8,462 | |||||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||
Purchases of property, plant and equipment | (2,324 | ) | (1,902 | ) | (1,396 | ) | (2,324 | ) | ||||||||
Proceeds from sale of equipment | - | 120 | ||||||||||||||
Net cash used in investing activities | (2,324 | ) | (1,782 | ) | (1,396 | ) | (2,324 | ) | ||||||||
FINANCING ACTIVITIES: | ||||||||||||||||
Payment of credit facilities | (1,186 | ) | (13,461 | ) | ||||||||||||
Borrowings on revolving credit facility | 3,350 | - | ||||||||||||||
Payments on term loan facility | (1,333 | ) | (1,186 | ) | ||||||||||||
Proceeds from exercise of stock options | 398 | 218 | 116 | 398 | ||||||||||||
Payment of debt issuance costs | (25 | ) | - | |||||||||||||
Tax withholdings on stock-based awards | (148 | ) | (15 | ) | (11 | ) | (148 | ) | ||||||||
Net cash used in financing activities | (936 | ) | (13,258 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 2,097 | (936 | ) | |||||||||||||
Effect of exchange rate changes on cash | (2 | ) | (79 | ) | (236 | ) | (2 | ) | ||||||||
INCREASE IN CASH | 5,200 | 6,372 | ||||||||||||||
(DECREASE) INCREASE IN CASH | (3,362 | ) | 5,200 | |||||||||||||
Cash, Beginning of period | 10,653 | 7,405 | 8,413 | 10,653 | ||||||||||||
Cash, End of period | $ | 15,853 | $ | 13,777 | $ | 5,051 | $ | 15,853 |
The accompanying notes are an integral part of these consolidated financial statements.
ULTRALIFE CORPORATION AND SUBSIDIARIES | |||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||||||||
(In thousands except share amounts) (Unaudited) |
Capital | Accumulated | Capital | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | in Excess | Other | Non- | Common Stock | in Excess | Other | Non- | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of | of Par | Comprehensive | Accumulated | Treasury | Controlling | Number of | of Par | Comprehensive | Accumulated | Treasury | Controlling | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Value | Income (Loss) | Deficit | Stock | Interest | Total | Shares | Amount | Value | Income (Loss) | Deficit | Stock | Interest | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance – December 31, 2019 | 20,268,050 | $ | 2,026 | $ | 184,292 | $ | (2,531 | ) | $ | (52,830 | ) | $ | (21,231 | ) | $ | 24 | $ | 109,750 | ||||||||||||||||||||||||||||||||||||||||||||||
Net income | 3,124 | 90 | 3,214 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option exercises | 50,797 | 5 | 213 | 218 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation – stock options | 674 | 674 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation - restricted stock | 82 | 82 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vesting of restricted stock | 12,501 | 2 | (15 | ) | (13 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (88 | ) | (88 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance – September 30, 2020 | 20,331,348 | $ | 2,033 | $ | 185,261 | $ | (2,619 | ) | $ | (49,706 | ) | $ | (21,246 | ) | $ | 114 | $ | 113,837 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance – December 31, 2020 | 20,373,519 | $ | 2,037 | $ | 185,464 | $ | (1,782 | ) | $ | (47,598 | ) | $ | (21,321 | ) | $ | 123 | $ | 116,923 | 20,373,519 | $ | 2,037 | $ | 185,464 | $ | (1,782 | ) | $ | (47,598 | ) | $ | (21,321 | ) | $ | 123 | $ | 116,923 | ||||||||||||||||||||||||||||
Net income | 897 | 1 | 898 | 897 | 1 | 898 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option exercises | 127,324 | 13 | 385 | (133 | ) | 265 | 127,324 | 13 | 385 | (133 | ) | 265 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation – stock options | 468 | 468 | 468 | 468 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation - restricted stock | 44 | 44 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation -restricted stock | 44 | 44 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vesting of restricted stock | 12,501 | 1 | (1 | ) | (15 | ) | (15 | ) | 12,501 | 1 | (1 | ) | (15 | ) | (15 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (37 | ) | (37 | ) | (37 | ) | (37 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance – September 30, 2021 | 20,513,344 | $ | 2,051 | $ | 186,360 | $ | (1,819 | ) | $ | (46,701 | ) | $ | (21,469 | ) | $ | 124 | $ | 118,546 | 20,513,344 | $ | 2,051 | $ | 186,360 | $ | (1,819 | ) | $ | (46,701 | ) | $ | (21,469 | ) | $ | 124 | $ | 118,546 | ||||||||||||||||||||||||||||
Balance – June 30, 2020 | 20,297,182 | $ | 2,030 | $ | 184,900 | $ | (3,296 | ) | $ | (50,113 | ) | $ | (21,246 | ) | $ | 59 | $ | 112,334 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance – December 31, 2021 | 20,522,427 | $ | 2,052 | $ | 186,518 | $ | (1,653 | ) | $ | (47,832 | ) | $ | (21,469 | ) | $ | 127 | $ | 117,743 | ||||||||||||||||||||||||||||||||||||||||||||||
Net income | 407 | 55 | 462 | 105 | - | 105 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option exercises | 34,166 | 3 | 139 | 142 | 39,119 | 4 | 112 | (7 | ) | 109 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation – stock options | 204 | 204 | 538 | 538 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation - restricted stock | 18 | 18 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation -restricted stock | 14 | 14 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vesting of restricted stock | 6,664 | 1 | (1 | ) | (4 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | 677 | 677 | (3,189 | ) | (3,189 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance – September 30, 2020 | 20,331,348 | $ | 2,033 | $ | 185,261 | $ | (2,619 | ) | $ | (49,706 | ) | $ | (21,246 | ) | $ | 114 | $ | 113,837 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance – September 30, 2022 | 20,568,210 | $ | 2,057 | $ | 187,181 | $ | (4,842 | ) | $ | (47,727 | ) | $ | (21,480 | ) | $ | 127 | $ | 115,316 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance – June 30, 2021 | 20,474,676 | $ | 2,047 | $ | 186,138 | $ | (1,586 | ) | $ | (46,116 | ) | $ | (21,388 | ) | $ | 142 | $ | 119,237 | 20,474,676 | $ | 2,047 | $ | 186,138 | $ | (1,586 | ) | $ | (46,116 | ) | $ | (21,388 | ) | $ | 142 | $ | 119,237 | ||||||||||||||||||||||||||||
Net loss | (585 | ) | (18 | ) | (603 | ) | (585 | ) | (18 | ) | (603 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option exercises | 38,668 | 4 | 80 | (81 | ) | 3 | 38,668 | 4 | 80 | (81 | ) | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation – stock options | 131 | 131 | 131 | 131 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation - restricted stock | 11 | 11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation -restricted stock | 11 | 11 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vesting of restricted stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (233 | ) | (233 | ) | (233 | ) | (233 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance – September 30, 2021 | 20,513,344 | $ | 2,051 | $ | 186,360 | $ | (1,819 | ) | $ | (46,701 | ) | $ | (21,469 | ) | $ | 124 | $ | 118,546 | 20,513,344 | $ | 2,051 | $ | 186,360 | $ | (1,819 | ) | $ | (46,701 | ) | $ | (21,469 | ) | $ | 124 | $ | 118,546 | ||||||||||||||||||||||||||||
Balance – June 30, 2022 | 20,567,460 | $ | 2,057 | $ | 186,999 | $ | (3,151 | ) | $ | (47,488 | ) | $ | (21,480 | ) | $ | 130 | $ | 117,067 | ||||||||||||||||||||||||||||||||||||||||||||||
Net loss | (239 | ) | (3 | ) | (242 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option exercises | 750 | - | 3 | - | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation – stock options | 176 | 176 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation -restricted stock | 3 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vesting of restricted stock | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (1,691 | ) | (1,691 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance – September 30, 2022 | 20,568,210 | $ | 2,057 | $ | 187,181 | $ | (4,842 | ) | $ | (47,727 | ) | $ | (21,480 | ) | $ | 127 | $ | 115,316 |
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 Statementsconsolidated financial statements of Ultralife Corporation and its subsidiaries (the “Company”, or “Ultralife”, “we” or “our”) 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 8-038-03 of Regulation S-X.S-X. Accordingly, they do not include all the information and footnotesnotes 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 Statementsconsolidated financial statements have been included. Results for interim periods should not be considered indicative of results to be expected for any subsequent interim period or thea full year. Reference should be made to the Consolidated Financial Statementsconsolidated financial statements and related notes thereto contained in our Form 10-K10-K for the year ended December 31, 2020.2021.
The December 31, 2020 2021 consolidated balance sheet information referenced herein was derived from audited Consolidated Financial Statementsfinancial 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.
Recently AdoptedSignificant Accounting GuidancePolicies
Effective JanuaryWe regularly review of our accounting policies and make modifications as necessary to align with new accounting standards and changing business conditions. Accordingly, the accounting policies below have been updated during the current year. Reference should be made to Note 1 2021, the Company adopted Accounting Standards Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740)”. ASU 2019-12 removes certain exceptions to the general principlesconsolidated financial statements in Topic 740 and clarifies and amends existing guidance to improve consistent application. Adoptionour 2021 Annual Report on Form 10-K for all other of the newCompany’s significant accounting policies.
Revenue Recognition:
Revenues are generated from the sale of products. Performance obligations are met and revenue is recognized upon transfer of control to the customer, which is generally upon shipment. When contract terms require transfer of control upon delivery at a customer’s location, revenue is recognized on the date of delivery. For products shipped under vendor managed inventory arrangements, revenue is recognized and billed when the product is consumed by the customer, at which point control has transferred and there are no further obligations by the Company. Revenue is measured as the amount of consideration we expect to receive in exchange for shipped product. Sales, value-added and other taxes billed and collected from customers are excluded from revenue. Customers, including distributors, do not have a general right of return.
Separately priced extended warranty contracts are offered on certain products. Extended warranties are treated as separate performance obligations and recognized to revenue evenly over the term of the respective contract. Revenue not yet recognized on extended warranty contracts is recorded as deferred revenue on the consolidated balance sheet.
For customer contracts with an original expected duration of less than one year, we apply 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.
Warranties:
We generally offer standard did not materially impactwarranties against product defects. We also offer separately priced extended warranty contracts on certain products. Warranty costs expected to be incurred are estimated based on the Company’s Consolidated Financial Statements.experience and recorded as costs of products sold. Standard warranty costs are recognized upon product sale. Extended warranty costs are recognized over the term of the contract. Provision for warranty costs is recorded in accrued expenses and other current liabilities and other noncurrent liabilities on our consolidated balance sheet based on the duration of the warranty.
Recent Accounting Guidance Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13,2016-13, “Financial Instruments – Credit Losses (Topic 326)326) – Measurement of Credit Losses on Financial Instruments”, which requires entities to measure all expected credit losses for financial assets held at the reporting date 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.
consolidated financial statements.
2. | ACQUISITION |
On December 13, 2021, the Company acquired all the outstanding shares of Excell (as defined below) for an aggregate net purchase price of $23,519 in cash.
On December 13, 2021, 1336889 B.C. Unlimited Liability Company, a British Columbia unlimited liability company and wholly-owned subsidiary of Ultralife Canada Holding Corp., a Delaware corporation (“UCHC”) and wholly-owned subsidiary of Ultralife Excell Holding Corp., a Delaware corporation (“UEHC”) and wholly-owned subsidiary of Ultralife Corporation, completed the acquisition of all issued and outstanding shares of Excell Battery Canada Inc., a British Columbia corporation (“Excell Canada”) (the “Excell Canada Acquisition”), and, concurrently, 1336902 B.C. Unlimited Liability Company, a British Columbia unlimited liability company and wholly-owned subsidiary of UCHC, completed the acquisition of all issued and outstanding shares of 656700 B.C. LTD, a British Columbia corporation and sole owner of all issued and outstanding shares of Excell Battery Corporation USA, a Texas corporation (“Excell USA”, and together with Excell Canada, “Excell Battery Group” or “Excell”) (the “Excell USA Acquisition”, and together with the Excell Canada Acquisition, the “Excell Acquisition”).
Based in Canada with U.S. operations, Excell is a leading independent designer and manufacturer of high-performance smart battery systems, battery packs and monitoring systems to customer specifications. Excell serves a variety of industrial markets including downhole drilling, OEM industrial and medical devices, automated meter reading, ruggedized computers, and mining, marine and other mission critical applications which demand uncompromised safety, service, reliability and quality.
The Excell Canada Acquisition was completed pursuant to a Share Purchase Agreement dated December 13, 2021 (the “Excell Canada Acquisition Agreement”) by and among 1336889 B.C. Unlimited Liability Company, Mark Kroeker, Randolph Peters, Brian Larsen, M. & W. Holdings Ltd., Karen Kroeker, Heather Peterson, Michael Kroeker, Nicholas Kroeker, Brentley Peters, Craig Peters, Kurtis Peters, Heather Larsen, Ian Kane, Carol Peters, and 0835205 B.C. LTD (the “Excell Canada Sellers”), Mark Kroeker in his capacity as the Excell Canada Sellers’ Representative, and Excell Canada. The Excell USA Acquisition was completed pursuant to a Share Purchase Agreement dated December 13, 2021 (the “Excell USA Acquisition Agreement”, and together with the Excell Canada Acquisition Agreement, the “Excell Acquisition Agreements”) by and among 1336902 B.C. Unlimited Liability Company, M. & W. Holdings Ltd., Ian Kane, Sanford Capital Ltd., Arcee Enterprises Inc., and 0835205 B.C. Ltd. (the “Excell USA Sellers”, and together with the Excell Canada Sellers, the “Sellers”), Mark Kroeker in his capacity as the Excell USA Sellers’ Representative, and 656700 B.C. LTD. The Excell Acquisition Agreements contain customary terms and conditions including representations, warranties and indemnification provisions. A portion of the consideration paid to the Sellers is being held in escrow for indemnification purposes for a period of twelve months from the closing date.
The Excell Acquisition was funded by the Company through a combination of cash on hand and borrowings under the Amended Credit Facilities (Note 3).
The Excell Acquisition was accounted for in accordance with the accounting treatment of a business combination pursuant to FASB ASC Topic 805, Business Combinations (“ASC 805”). Accordingly, the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values on the acquisition date. The excess of the purchase price over the estimated fair value of the separately identifiable assets acquired and liabilities assumed was allocated to goodwill. Management is responsible for determining the acquisition date fair value of the assets acquired and liabilities assumed, which requires the use of various assumptions and judgments that are inherently subjective. The purchase price allocation presented below reflects all known information about the fair value of the assets acquired and liabilities assumed as of the acquisition date. The purchase price allocation is subject to change should additional information existing as of the acquisition date about the fair value of the assets acquired and liabilities assumed becomes known. The final purchase price allocation may reflect material changes in the valuation of assets acquired and liabilities assumed, including but not limited to intangible assets, fixed assets, deferred taxes, and residual goodwill.
Cash | $ | 736 | ||
Accounts receivable | 3,570 | |||
Inventories | 3,622 | |||
Prepaid expenses and other current assets | 785 | |||
Property, plant and equipment | 429 | |||
Goodwill | 10,989 | |||
Other intangible assets | 8,870 | |||
Other noncurrent assets | 991 | |||
Accounts payable | (1,450 | ) | ||
Accrued compensation and related benefits | (540 | ) | ||
Accrued expenses and other current liabilities | (720 | ) | ||
Deferred tax liability, net | (2,223 | ) | ||
Other noncurrent liabilities | (803 | ) | ||
Net assets acquired | $ | 24,256 |
The purchase price allocation was adjusted during the nine-month period ended September 30, 2022 to reflect a change in the estimated fair value of certain other intangible assets acquired. The measurement period adjustment resulted in a $40 increase in other intangible assets acquired, a $10 increase in deferred tax liabilities and a $30 decrease to goodwill. The adjusted purchase price allocation is reflected in the consolidated balance sheet as of September 30, 2022.
The goodwill included in the Company’s purchase price allocation presented above represents the value of Excell’s assembled and trained workforce, the incremental value that Excell engineering and technology is expected to bring to the Company and the revenue growth expected to occur over time 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.
Other intangible assets were valued using the income approach which requires a forecast of all expected future cash flows and the use of certain assumptions and estimates. The following table summarizes the estimated fair value and annual amortization for each of the identifiable intangible assets acquired.
Annual Amortization | ||||||||||||||||||||||||||||
Estimated | Amortization | Year | Year | Year | Year | Year | ||||||||||||||||||||||
Customer relationships | $ | 4,100 | 15 | $ | 273 | $ | 273 | $ | 273 | $ | 273 | $ | 273 | |||||||||||||||
Trade name | 3,150 | Indefinite | - | - | - | - | - | |||||||||||||||||||||
Customer contracts | 1,140 | 15 | 76 | 76 | 76 | 76 | 76 | |||||||||||||||||||||
Backlog | 360 | 1 | 360 | - | - | - | - | |||||||||||||||||||||
Technology | 120 | 7 | 17 | 17 | 17 | 17 | 17 | |||||||||||||||||||||
Total | $ | 8,870 | $ | 726 | $ | 366 | $ | 366 | $ | 366 | $ | 366 |
We acquired right-of-use assets and assumed lease liabilities of $960 for Excell’s operating facilities. Right-of-use assets are classified as other noncurrent assets, and current and long-term lease liabilities are classified as accrued expenses and other current liabilities and other noncurrent liabilities, respectively, on the Company’s consolidated balance sheet.
The operating results and cash flows of Excell are reflected in the Company’s consolidated financial statements from the date of acquisition. Excell is included in the Battery & Energy Products segment.
For the three months ended September 30, 2022, Excell contributed revenue of $6,871 and net income of $398, inclusive of amortization expense of $181 on acquired identifiable intangible assets. For the nine months ended September 30, 2022, Excell contributed revenue of $19,898 and net income of $1,112, inclusive of amortization expense of $545 on acquired identifiable intangible assets and $55 in cost of products sold attributable to the fair market value step-up of acquired inventory sold during the period.
3. | DEBT |
On May 1, 2019, December 13, 2021, Ultralife, Southwest Electronic Energy Corporation, a Texas corporation (“SWE”), and CLB, INC., a Texas corporation and wholly owned subsidiary of SWE (“CLB”), UEHC, UCHC and Excell USA, as borrowers, entered into the FirstSecond 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 dated May 31, 2017 as amended by the First Amendment Agreement by and among Ultralife, SWE, CLB and KeyBank dated May 31, 2017 (the1, 2019 (the “Credit Agreement”, and together with the FirstSecond Amendment Agreement, the “Amended Credit Agreement”).
The Amended Credit Agreement, among other things, provides for a five-year, $8,0005-year, $10,000 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“Amended Credit Facilities”) through May 31, 2022. 30, 2025. Up to six months prior to May 31, 2022, 30, 2025, the Revolving Credit Facility may be increased to $50,000 with the Bank’s concurrence.
As of September 30, 2021, 2022, the Company had $288$8,667 outstanding principal on the Term Loan Facility, all$2,000 of which is included in current portion of long-term debt on the Consolidated Balance Sheet,consolidated balance sheet, and no amounts$14,330 outstanding on the Revolving Credit Facility. As of September 30, 2021, 2022, total unamortized debt issuance costs of $35$123, including placement, renewal and legal fees associated with the Amended Credit Agreement, including placement, renewal and legal fees, are classified as a reduction of the current portion of long-term debt on the Consolidated Balance Sheet.balance sheet. Debt issuance costs are amortized to interest expense over the remaining term of the Amended Credit Facilities.
The remaining availability under the Revolving Credit Facility is subject to certain borrowing base limits based on trade receivables and inventories.
The Company is required to repay the borrowings under the Term Loan Facility in sixty (60) equal consecutive monthly payments which commencedcommencing on May 31, 2019, February 1, 2022, in arrears, together with applicable interest. All unpaid principal and accrued and unpaid interest with respect to the Term Loan Facility is due and payable in full on April 30, 2024. January 1, 2027. All unpaid principal and accrued and unpaid interest with respect to the Revolving Credit Facility is due and payable in full on May 31, 2022. 30, 2025. The Company may voluntarily prepay principal amounts outstanding at any time subject to certain restrictions. The Company made voluntary prepayments of $4,200 during the year ended December 31, 2020. NaN voluntary prepayments were made during the nine months ended September 30, 2021.
In addition to the customary affirmative and negative covenants, the Company must maintain a consolidated fixed charge coverage ratio equal to or greater than 1.15 to 1.0, and a consolidated senior leverage ratio, 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 underAgreement, of equal to or less than 3.5 to 1.0 for the Amended Credit Agreement as of Septemberfiscal quarters ending December 31, 2022 and March 31, 2023, and equal to or less than 3.0 to 1.0 for the fiscal quarters ending June 30, 2021.2023 and thereafter.
Borrowings under the Amended 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 receivablesCompany and inventories.its subsidiaries.
Interest will accrue on outstanding indebtedness under the Amended 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 higherhighest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 50 basis points, and (c) the Overnight LIBOR Rate plus one 100hundred basis points. The applicable margin ranges from zero (0) 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 Second Amendment Agreement includes standard market provisions permitting the Bank to transition from LIBOR to a SOFR based rate, in its discretion.
The Company must pay a quarterly fee of 0.1%0.15% to 0.2%0.25% 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 Amended Credit Facilities and from the proceeds of certain transactions. Upon the occurrence of an event of default, the outstanding obligations may be accelerated, and the Bank will have other customary remedies including resort to the security interest the Company provided to the Bank.
| EARNINGS PER SHARE |
Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) attributable to Ultralife by the weighted-averageweighted 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-monththree-month period ended September 30, 2021, 2022, there were no outstanding stock awards included in the calculation of diluted weighted average shares outstanding and 0no potential common shares included in the calculation of diluted EPS, as no securities were dilutive. There were 1,202,076 outstanding stock options and 5,000 restricted stock awards not included in the calculation of diluted EPS for the three-month period ended September 30, 2022, as the effect would be antidilutive.
For the comparable three-month period ended September 30, 2021, there were no outstanding stock awards included in the calculation of diluted weighted average shares outstanding and no potential common shares included in the calculation of diluted EPS, as no securities were dilutive. There were 1,064,656 outstanding stock options and 14,164 unvested restricted stock awards not included in the calculation of diluted EPS for the three-monththree-month period ended September 30, 2021, as the effect would be antidilutive.
For the comparable three-monthnine-month period ended September 30, 2020, 831,2442022, there were 128,665 outstanding stock options and 19,1655,000 outstanding restricted stock awards were included in the calculation of diluted weighted average shares outstanding, as such securities were dilutive, resulting in 181,27022,203 potential common shares included in the calculation of diluted EPS. There were 898,167 outstanding stock options not included inFor the calculation of diluted EPS for the three-monthcomparable nine-month period ended September 30, 2020, as the effect would be antidilutive.
For the nine-month period ended September 30, 2021, there were 598,489 outstanding stock options and 14,164 outstanding restricted stock awards included in the calculation of diluted weighted average shares outstanding, as such securities were dilutive, resulting in 179,951 potential common shares included in the calculation of diluted EPS. For the nine-month period ended September 30, 2020, thereThere were 831,2441,073,411 and 466,167 outstanding stock options and 19,165 outstanding restricted stock awardsnot included in the calculation of diluted weighted average shares outstanding resulting in 213,574 potential common shares included in the calculation of diluted EPS. There were 466,167 and 898,167 outstanding stock options not included in the calculation of diluted EPS for the nine-monthnine-month periods ended September 30, 2022 and September 30, 2021, and September 30, 2020, respectively, as the effect would be antidilutive.
| SUPPLEMENTAL BALANCE SHEET INFORMATION |
Fair Value Measurements and Disclosures
The fair value of financial instruments approximated their carrying values at September 30, 2021 2022 and December 31, 2020. 2021. The fair value of cash, accounts receivable, accounts payable, accrued liabilities, and the current portion of long-term debt approximates carrying value due to the short-term nature of these instruments.
Cash
The composition of the Company’s cash was as follows:
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Cash | $ | 15,766 | $ | 10,562 | $ | 4,978 | $ | 8,329 | ||||||||
Restricted cash | 87 | 91 | 73 | 84 | ||||||||||||
Total | $ | 15,853 | $ | 10,653 | $ | 5,051 | $ | 8,413 |
As of September 30, 2021 2022 and December 31, 2020, 2021, restricted cash included $87 and $91,$73and $84, respectively, of euro-denominated deposits withheld by the Dutch tax authorities and third-party value-added tax (VAT)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 Statementsconsolidated statements of Cash Flows.cash flows.
Inventories, Net
Inventories are stated at the lower of cost or net realizable value, net of obsolescence reserves, with cost determined under the first-in, first-outfirst-in, first-out (FIFO) method. The composition of inventories, net was:
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Raw materials | $ | 16,955 | $ | 17,277 | $ | 28,485 | $ | 21,660 | ||||||||
Work in process | 3,485 | 3,411 | 3,215 | 4,227 | ||||||||||||
Finished goods | 7,739 | 7,505 | 9,069 | 7,302 | ||||||||||||
Total | $ | 28,179 | $ | 28,193 | $ | 40,769 | $ | 33,189 |
Property, Plant and Equipment, Net
Major classes of property, plant and equipment consisted of the following:
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Land | $ | 1,273 | $ | 1,273 | ||||
Buildings and leasehold improvements | 15,425 | 15,393 | ||||||
Machinery and equipment | 62,449 | 61,048 | ||||||
Furniture and fixtures | 2,503 | 2,235 | ||||||
Computer hardware and software | 7,316 | 6,894 | ||||||
Construction in process | 1,456 | 1,227 | ||||||
90,422 | 88,070 | |||||||
Less: Accumulated depreciation | (67,387 | ) | (65,220 | ) | ||||
Property, plant and equipment, net | $ | 23,035 | $ | 22,850 |
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Land | $ | 1,273 | $ | 1,273 | ||||
Buildings and leasehold improvements | 15,483 | 15,442 | ||||||
Machinery and equipment | 63,724 | 63,780 | ||||||
Furniture and fixtures | 2,787 | 2,588 | ||||||
Computer hardware and software | 7,589 | 7,579 | ||||||
Construction in process | 1,041 | 761 | ||||||
91,897 | 91,423 | |||||||
Less: Accumulated depreciation | (69,999 | ) | (68,218 | ) | ||||
Property, plant and equipment, net | $ | 21,898 | $ | 23,205 |
Depreciation expense for property, plant and equipment was as follows:
Three-month period ended | Nine-month period ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Depreciation expense | $ | 700 | $ | 582 | $ | 2,160 | $ | 1,743 |
Three-month period ended | Nine-month period ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Depreciation expense | $ | 815 | $ | 700 | $ | 2,450 | $ | 2,160 |
Goodwill
The following table summarizes the goodwill activity by segment for the nine-monthnine-month period ended September 30, 2021.2022.
Battery & Energy | Communications | |||||||||||
Products | Systems | Total | ||||||||||
Balance – December 31, 2020 | $ | 15,525 | $ | 11,493 | $ | 27,018 | ||||||
Effect of foreign currency translation | (20 | ) | 0 | (20 | ) | |||||||
Balance – September 30, 2021 | $ | 15,505 | $ | 11,493 | $ | 26,998 |
Battery & Energy | Communications | |||||||||||
Products | Systems | Total | ||||||||||
Balance – December 31, 2021 | $ | 26,575 | $ | 11,493 | $ | 38,068 | ||||||
Measurement period adjustment (1) | (30 | ) | - | (30 | ) | |||||||
Effect of foreign currency translation | (972 | ) | - | (972 | ) | |||||||
Balance – September 30, 2022 | $ | 25,573 | $ | 11,493 | $ | 37,066 |
(1) | Change for measurement period adjustment related to Excell Acquisition (Note 2). |
Other Intangible Assets, Net
The composition of other intangible assets was:
September 30, 2021 | at September 30, 2022 | |||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||
Cost | Amortization | Net | Cost | Amortization | Net | |||||||||||||||||||
Trademarks | $ | 3,412 | $ | 0 | $ | 3,412 | ||||||||||||||||||
Customer relationships | 9,133 | 5,377 | 3,756 | $ | 12,781 | $ | 5,757 | $ | 7,024 | |||||||||||||||
Patents and technology | 5,542 | 5,097 | 445 | 5,481 | 5,092 | 389 | ||||||||||||||||||
Distributor relationships | 377 | 377 | 0 | |||||||||||||||||||||
Trade name | 1,519 | 407 | 1,112 | |||||||||||||||||||||
Total | $ | 19,983 | $ | 11,258 | $ | 8,725 | ||||||||||||||||||
Trade names | 4,601 | 475 | 4,126 | |||||||||||||||||||||
Trademarks | 3,401 | - | 3,401 | |||||||||||||||||||||
Other | 1,500 | 345 | 1,155 | |||||||||||||||||||||
Total other intangible assets | $ | 27,764 | $ | 11,669 | $ | 16,095 |
December 31, 2020 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net | ||||||||||
Trademarks | $ | 3,410 | $ | 0 | $ | 3,410 | ||||||
Customer relationships | 9,171 | 5,115 | 4,056 | |||||||||
Patents and technology | 5,557 | 5,014 | 543 | |||||||||
Distributor relationships | 377 | 377 | 0 | |||||||||
Trade name | 1,524 | 324 | 1,200 | |||||||||
Total | $ | 20,039 | $ | 10,830 | $ | 9,209 |
at December 31, 2021 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net | ||||||||||
Customer relationships | $ | 13,214 | $ | 5,484 | $ | 7,730 | ||||||
Patents and technology | 5,667 | 5,126 | 541 | |||||||||
Trade names | 4,670 | 436 | 4,234 | |||||||||
Trademarks | 3,413 | - | 3,413 | |||||||||
Other | 1,490 | 18 | 1,472 | |||||||||
Total other intangible assets | $ | 28,454 | $ | 11,064 | $ | 17,390 |
The change in the cost of total intangible assets from December 31, 2020 2021 to September 30, 2021 2022 is a result of measurement period adjustments for the Excell Acquisition (Note 2) and the effect of foreign currency translations.
Amortization expense for other intangible assets was as follows:
Three-month period ended | Nine-month period ended | Three-month period ended | Nine-month period ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Amortization included in: | ||||||||||||||||||||||||||||||||
Research and development | $ | 27 | $ | 31 | $ | 93 | $ | 92 | $ | 23 | $ | 27 | $ | 74 | $ | 93 | ||||||||||||||||
Selling, general and administrative | 121 | 118 | 365 | 352 | 295 | 121 | 895 | 365 | ||||||||||||||||||||||||
Total amortization expense | $ | 148 | $ | 149 | $ | 458 | $ | 444 | $ | 318 | $ | 148 | $ | 969 | $ | 458 |
| STOCK-BASED COMPENSATION |
We recorded non-cash stock compensation expense in each period as follows:
Three-month period ended | Nine-month period ended | Three-month period ended | Nine-month period ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Stock options | $ | 131 | $ | 204 | $ | 468 | $ | 674 | $ | 176 | $ | 131 | $ | 538 | $ | 468 | ||||||||||||||||
Restricted stock grants | 11 | 18 | 44 | 82 | 3 | 11 | 14 | 44 | ||||||||||||||||||||||||
Total | $ | 142 | $ | 222 | $ | 512 | $ | 756 | $ | 179 | $ | 142 | $ | 552 | $ | 512 |
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 September 30, 2021, 2022, there was $367$393 of total unrecognized compensation cost related to outstanding stock options, which is expected to be recognized over a weighted average period of 1.11.0 years.
The following table summarizes stock option activity for the nine-monthnine-month period ended September 30, 2021:2022:
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at January 1, 2021 | 1,217,163 | $ | 6.50 | |||||||||||||
Granted | 56,500 | 8.50 | ||||||||||||||
Exercised | (184,429 | ) | 4.46 | |||||||||||||
Forfeited or expired | (24,578 | ) | 7.35 | |||||||||||||
Outstanding at September 30, 2021 | 1,064,656 | $ | 6.94 | 3.83 | $ | 978 | ||||||||||
Vested and expected to vest at September 30, 2021 | 995,875 | $ | 6.91 | 3.71 | $ | 958 | ||||||||||
Exercisable at September 30, 2021 | 769,123 | $ | 6.77 | 3.14 | $ | 889 |
Number of | Weighted | Weighted | Aggregate | |||||||||||||
Outstanding at January 1, 2022 | 1,306,824 | $ | 6.87 | |||||||||||||
Granted | 11,500 | 4.49 | ||||||||||||||
Exercised | (59,500 | ) | 3.82 | |||||||||||||
Forfeited or expired | (56,748 | ) | 6.63 | |||||||||||||
Outstanding at September 30, 2022 | 1,202,076 | $ | 7.01 | 3.81 | $ | 70 | ||||||||||
Vested and expected to vest at September 30, 2022 | 1,119,892 | $ | 7.04 | 3.67 | $ | 70 | ||||||||||
Exercisable at September 30, 2022 | 803,774 | $ | 7.22 | 2.82 | $ | 67 |
Cash received from stock option exercises under our stock-based compensation plans for the three-monththree-month periods ended September 30, 2022 and September 30, 2021 was $3 and September 30, 2020 was $84, and $142, respectively. Cash received from stock option exercises under our stock-based compensation plans for the nine-monthnine-month periods ended September 30, 2022 and September 30, 2021 was $116 and September 30, 2020 was $398, and $218, respectively.
In October 2020, 5,000 shares of restricted stock were awarded to an employee at a weighted-average grant date fair value of $6.08 per share. 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 outstandingOutstanding restricted shares vest in equal annual installments over three three(3) (3) years. There were 5,000 unvested restricted shares outstanding as of September 30, 2022. Unrecognized compensation cost related to these restricted shares was $26$4 at September 30, 2021, 2022, which is expected to be recognized over a weighted average period of 1.31.1 years.
| INCOME TAXES |
Our effective income tax rate for the nine-monthnine-month periods ended September 30, 2022 and September 30, 2021 was 259.1%and September 30, 2020 was 24.4% and 23.9%, respectively. The period-over-period change was primarily attributable to the geographic mix of earningsour operating results and incentive stock options.the larger effect of permanent and discrete adjustments in the current year.
As of December 31, 2020, 2021, we have domestic net operating loss (“NOL”) carryforwards of $47,755,$44,716, which expire 2021 through 2035,2022 thru 2037, and domestic tax credits of $2,070,$2,239, which expire 2028 through thru 2039, available to reduce future taxable income. As of September 30, 2021, 2022, management has concluded it is more likely than not that these domestic NOL and credit carryforwards will be fully utilized.
As of September 30, 2021, 2022, for certain past operations in the U.K., we continue to report a valuation allowance for NOL carryforwards of approximately $11,000,$10,000, nearly all of which can be carried forward indefinitely. Utilization of the NOLs 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. There are no other deferred tax assets related to the past U.K. operations.
As of September 30, 2021, 2022, 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 September 30, 2021, 2022, the Company maintains its assertion that all foreign earnings will be indefinitely reinvested in those operations, other than earnings generated in the U.K.
There were 0no unrecognized tax benefits related to uncertain tax positions at September 30, 2021 2022 and December 31, 2020.2021.
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. In August 2020, the Internal Revenue Service (“IRS”) completed its examination of the Company’s federal tax returns for 2016-20182016-2018 with no material adjustments identified. Our U.S. tax matters for 2019 and 20202019-2021 remain subject to IRS examination. Our U.S. tax matters for 2001,20022002,2005-2007, 2005-2007 and 2011-20152011-2015 also remain subject to IRS examination due to the remaining availability of NOL carryforwards generated in those years. Our U.S. tax matters for 2001,20022002,2005-2007, 2005-2007 and 2011-20202011-2021 remain subject to examination by various state and local tax jurisdictions. Our tax matters for the years 20102011 through 20202021 remain subject to examination by the respective foreign tax jurisdiction authorities.
| OPERATING LEASES |
The Company has operating leases predominantly for operating facilities. As of September 30, 2021, 2022, the remaining lease terms on our operating leases range from less than approximately one(1) year to three (3)ten (10) years. RenewalLease terms include renewal optionsnot yet exercised and termination options are not reasonably certain of exercise by the Company.exercise. 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.
The components of lease expense for the current and prior-year comparative periods were as follows:
Three months ended | Nine months ended | Three months ended | Nine months ended | |||||||||||||||||||||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | September | September | September | September | |||||||||||||||||||||||||
Operating lease cost | $ | 188 | $ | 172 | $ | 564 | $ | 508 | $ | 216 | $ | 188 | $ | 674 | $ | 564 | ||||||||||||||||
Variable lease cost | 25 | 18 | 57 | 54 | 22 | 25 | 69 | 57 | ||||||||||||||||||||||||
Total lease cost | $ | 213 | $ | 190 | $ | 621 | $ | 562 | $ | 238 | $ | 213 | $ | 743 | $ | 621 |
Supplemental cash flow information related to leases was as follows:
Nine months ended | ||||||||
September 30, 2021 | September 30, 2020 | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows from operating leases | $ | 550 | $ | 506 | ||||
Right-of-use assets obtained in exchange for lease liabilities: | $ | 0 | $ | 875 |
Nine-month period ended | ||||||||
September | September | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows used in operating leases | $ | 676 | $ | 550 |
Supplemental consolidated balance sheet information related to leases was as follows:
Balance Sheet Classification | September 30, 2021 | December 31, 2020 | Balance sheet classification | September | December | |||||||||||||
Assets: | ||||||||||||||||||
Operating lease right-of-use asset | Other noncurrent assets | $ | 1,711 | $ | 2,189 | Other noncurrent assets | $ | 1,861 | $ | 2,581 | ||||||||
Liabilities: | ||||||||||||||||||
Current operating lease liability | Accrued expenses and other current liabilities | $ | 657 | $ | 680 | Accrued expenses and other current liabilities | $ | 824 | $ | 867 | ||||||||
Operating lease liability, net of current portion | Other noncurrent liabilities | 1,086 | 1,524 | Other noncurrent liabilities | 1,064 | 1,743 | ||||||||||||
Total operating lease liability | Total operating lease liability | $ | 1,743 | $ | 2,204 | Total operating lease liability | $ | 1,888 | $ | 2,610 | ||||||||
Weighted-average remaining lease term (years) | Weighted-average remaining lease term (years) | 2.6 | 3.3 | Weighted-average remaining lease term (years) | 4.2 | 4.5 | ||||||||||||
Weighted-average discount rate | Weighted-average discount rate | 4.5 | % | 4.5 | % | Weighted-average discount rate | 4.5 | % | 4.5 | % |
Future minimum lease payments as of September 30, 2021 2022 are as follows:
Maturity of Operating Lease Liabilities | ||||||||
2021 | 179 | |||||||
Maturity of operating lease liabilities | ||||||||
2022 | 700 | $ | 212 | |||||
2023 | 720 | 840 | ||||||
2024 | 279 | 430 | ||||||
2025 | 128 | |||||||
2026 | 129 | |||||||
2027 | 129 | |||||||
Thereafter | 264 | |||||||
Total lease payments | 1,878 | 2,132 | ||||||
Less: Imputed interest | (135 | ) | (244 | ) | ||||
Present value of remaining lease payments | $ | 1,743 | $ | 1,888 |
| COMMITMENTS AND CONTINGENCIES |
a. Purchase Commitments
As of September 30, 2021, 2022, we have made commitments to purchase approximately $1,100$624 of production machinery and equipment.
b. Product Warranties
We estimate futuregenerally offer standard warranties against product defects. We also offer separately priced extended warranty contracts on certain products. Warranty costs expected to be incurred for product failure rates, material usageare estimated based on the Company’s experience and servicerecorded as costs in the development of our warranty obligations. Estimated futureproducts sold. Standard warranty costs are based on actual past experience andrecognized upon product sale. Extended warranty costs are generally estimated as a percentage of salesrecognized over the warranty period. Changes in our product warranty liability duringterm of the firstnine months of 2021 and 2020 were as follows:contract.
Nine-month period ended September 30, | Nine-month period ended September 30, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Accrued warranty obligations – beginning | $ | 149 | $ | 195 | $ | 133 | $ | 149 | ||||||||
Accruals for warranties issued | 123 | 75 | 247 | 123 | ||||||||||||
Settlements made | (143 | ) | (103 | ) | (94 | ) | (143 | ) | ||||||||
Accrued warranty obligations – ending | $ | 129 | $ | 167 | $ | 286 | $ | 129 |
c. Contingencies and Legal Matters
We are subject to legal proceedings and claims that arise from time to time in the ordinarynormal course of business. We believe that the final disposition of any such matters of which we are currently aware 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 current or future legalthese matters could have a material adverse impact on the Company’s financial position, results of operations or cash flows. We are not aware of any such situations at this time.
| REVENUE RECOGNITION |
Revenues are generated from the sale of products. Performance obligations are met and revenue is recognized upon transfer of control to the customer, which is generally upon shipment. When contract terms require transfer of control upon delivery at a customer’s location, revenue is recognized on the date of delivery. For products shipped under vendor-managedvendor managed inventory arrangements, revenue is recognized and billed when the product is consumed by the customer, at which point control has transferred and there are no further obligations by the Company. Revenue is measured as the amount of consideration we expect to receive in exchange for shipped product. Sales, value-added and other taxes billed and collected from customers are excluded from revenue. Customers, including distributors, do not have a general right of return.
Revenues recognized from prior periodSeparately priced extended warranty contracts are offered on certain Communications Systems products for a duration of up to eight (8) years. Extended warranties are treated as separate performance obligations forand recognized to revenue evenly over the nine-month periods ended September 30, 2021 and 2020 were term of the respective contract. Revenue not material. yet recognized on extended warranty contracts is recorded as deferred revenue on the consolidated balance sheet.
DeferredAs of September 30, 2022, there was deferred revenue unbilled revenueon extended warranty contracts of $592 in other noncurrent liabilities and deferred contract costs recorded$119 in accrued expenses and other current liabilities on our Consolidated Balance Sheets asconsolidated balance sheet. As of September 30, 2021 and December 31, 2020 were not material. As of September 30, 2021, and December 31, 2020, 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 extended warranty obligations.
| BUSINESS SEGMENT INFORMATION |
We report our results in 2two (2) operating segments: Battery & Energy Products and Communications Systems. The Battery & Energy Products segment includes: Lithium 9-volt,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. We report operating expenses as Corporate charges.
Three-month period ended September 30, 2022:
Battery & | Communications Systems | Corporate | Total | |||||||||||||
Revenues | $ | 28,583 | $ | 4,651 | $ | - | $ | 33,234 | ||||||||
Segment contribution | 5,345 | 1,370 | (7,301 | ) | (586 | ) | ||||||||||
Other income | 254 | 254 | ||||||||||||||
Income tax benefit | 90 | 90 | ||||||||||||||
Non-controlling interest | 3 | 3 | ||||||||||||||
Net loss attributable to Ultralife | $ | (239 | ) |
The components of segment performance were as follows:
Three-month period ended September 30, 2021:
Battery & Energy Products | Communications Systems | Corporate | Total | Battery & | Communications Systems | Corporate | Total | |||||||||||||||||||||||||
Revenues | $ | 20,008 | $ | 1,753 | $ | 0 | $ | 21,761 | $ | 20,008 | $ | 1,753 | $ | - | $ | 21,761 | ||||||||||||||||
Segment contribution | 4,792 | 316 | (5,887 | ) | (779 | ) | 4,792 | 316 | (5,887 | ) | (779 | ) | ||||||||||||||||||||
Other income | 0 | 1 | 1 | 1 | 1 | |||||||||||||||||||||||||||
Income tax benefit | 175 | 175 | 175 | 175 | ||||||||||||||||||||||||||||
Non-controlling interest | 18 | 18 | 18 | 18 | ||||||||||||||||||||||||||||
Net loss attributable to Ultralife | $ | (585 | ) | $ | (585 | ) |
Three-month period ended September 30, 2020:
Battery & Energy Products | Communications Systems | Corporate | Total | |||||||||||||
Revenues | $ | 21,819 | $ | 2,543 | $ | 0 | $ | 24,362 | ||||||||
Segment contribution | 5,677 | 834 | (5,804 | ) | 707 | |||||||||||
Other expense | (53 | ) | (53 | ) | ||||||||||||
Tax provision | (192 | ) | (192 | ) | ||||||||||||
Non-controlling interest | (55 | ) | (55 | ) | ||||||||||||
Net income attributable to Ultralife | $ | 407 |
Nine-month period ended September 30, 2021:2022:
Battery & Energy Products | Communications Systems | Corporate | Total | Battery & | Communications | Corporate | Total | |||||||||||||||||||||||||
Revenues | $ | 64,994 | $ | 9,510 | $ | 0 | $ | 74,504 | $ | 87,873 | $ | 7,860 | $ | - | $ | 95,733 | ||||||||||||||||
Segment contribution | 16,244 | 3,109 | (18,089 | ) | 1,264 | 19,217 | 2,102 | (21,407 | ) | (88 | ) | |||||||||||||||||||||
Other expense | (76 | ) | (76 | ) | ||||||||||||||||||||||||||||
Income tax provision | (290 | ) | (290 | ) | ||||||||||||||||||||||||||||
Other income | 22 | 22 | ||||||||||||||||||||||||||||||
Income tax benefit | 171 | 171 | ||||||||||||||||||||||||||||||
Non-controlling interest | (1 | ) | (1 | ) | - | - | ||||||||||||||||||||||||||
Net income attributable to Ultralife | $ | 897 | $ | 105 |
Nine-month period ended September 30, 2020:2021:
Battery & Energy Products | Communications Systems | Corporate | Total | Battery & | Communications Systems | Corporate | Total | |||||||||||||||||||||||||
Revenues | $ | 66,616 | $ | 12,120 | $ | 0 | $ | 78,736 | $ | 64,994 | $ | 9,510 | $ | - | $ | 74,504 | ||||||||||||||||
Segment contribution | 17,019 | 4,789 | (17,322 | ) | 4,486 | 16,244 | 3,109 | (18,089 | ) | 1,264 | ||||||||||||||||||||||
Other expense | (262 | ) | (262 | ) | (76 | ) | (76 | ) | ||||||||||||||||||||||||
Tax provision | (1,010 | ) | (1,010 | ) | ||||||||||||||||||||||||||||
Income tax provision | (290 | ) | (290 | ) | ||||||||||||||||||||||||||||
Non-controlling interest | (90 | ) | (90 | ) | (1 | ) | (1 | ) | ||||||||||||||||||||||||
Net income attributable to Ultralife | $ | 3,124 | $ | 897 |
The following tables disaggregate our business segment revenues by major source and geography.
Commercial and Government/Defense Revenue Information:
Three-month period ended September 30, 2021:2022:
Total Revenue | Commercial | Government/ Defense | Total Revenue | Commercial | Government/ Defense | |||||||||||||||||||
Battery & Energy Products | $ | 20,008 | $ | 16,579 | $ | 3,429 | $ | 28,583 | $ | 22,878 | $ | 5,705 | ||||||||||||
Communications Systems | 1,753 | 0 | 1,753 | 4,651 | - | 4,651 | ||||||||||||||||||
Total | $ | 21,761 | $ | 16,579 | $ | 5,182 | $ | 33,234 | $ | 22,878 | $ | 10,356 | ||||||||||||
76 | % | 24 | % | 69 | % | 31 | % |
Three-month period ended September 30, 2020:2021:
Total Revenue | Commercial | Government/ Defense | Total Revenue | Commercial | Government/ Defense | |||||||||||||||||||
Battery & Energy Products | $ | 21,819 | $ | 15,772 | $ | 6,047 | $ | 20,008 | $ | 16,579 | $ | 3,429 | ||||||||||||
Communications Systems | 2,543 | 0 | 2,543 | 1,753 | - | 1,753 | ||||||||||||||||||
Total | $ | 24,362 | $ | 15,772 | $ | 8,590 | $ | 21,761 | $ | 16,579 | $ | 5,182 | ||||||||||||
65 | % | 35 | % | 76 | % | 24 | % |
Nine-month period ended September 30, 2021:2022:
Total Revenue | Commercial | Government/ Defense | Total Revenue | Commercial | Government/ Defense | |||||||||||||||||||
Battery & Energy Products | $ | 64,994 | $ | 46,935 | $ | 18,059 | $ | 87,873 | $ | 70,154 | $ | 17,719 | ||||||||||||
Communications Systems | 9,510 | 0 | 9,510 | 7,860 | - | 7,860 | ||||||||||||||||||
Total | $ | 74,504 | $ | 46,935 | $ | 27,569 | $ | 95,733 | $ | 70,154 | $ | 25,579 | ||||||||||||
63 | % | 37 | % | 73 | % | 27 | % |
Nine-month period ended September 30, 2020:2021:
Total Revenue | Commercial | Government/ Defense | Total Revenue | Commercial | Government/ Defense | |||||||||||||||||||
Battery & Energy Products | $ | 66,616 | $ | 46,746 | $ | 19,870 | $ | 64,994 | $ | 46,935 | $ | 18,059 | ||||||||||||
Communications Systems | 12,120 | 0 | 12,120 | 9,510 | - | 9,510 | ||||||||||||||||||
Total | $ | 78,736 | $ | 46,746 | $ | 31,990 | $ | 74,504 | $ | 46,935 | $ | 27,569 | ||||||||||||
59 | % | 41 | % | 63 | % | 37 | % |
U.S. and Non-U.S. Revenue Information1:
Three-month period ended September 30, 2022:
Total Revenue | United | Non-United | ||||||||||
Battery & Energy Products | $ | 28,583 | $ | 13,433 | $ | 15,150 | ||||||
Communications Systems | 4,651 | 3,547 | 1,104 | |||||||||
Total | $ | 33,234 | $ | 16,980 | $ | 16,254 | ||||||
51 | % | 49 | % |
Three-month period ended September 30, 2021:
Total Revenue | United | Non-United | ||||||||||
Battery & Energy Products | $ | 20,008 | $ | 7,941 | $ | 12,067 | ||||||
Communications Systems | 1,753 | 1,249 | 504 | |||||||||
Total | $ | 21,761 | $ | 9,190 | $ | 12,571 | ||||||
42 | % | 58 | % |
Three-month period ended September 30, 2020:
Total Revenue | United States | Non-United States | ||||||||||
Battery & Energy Products | $ | 21,819 | $ | 10,820 | $ | 10,999 | ||||||
Communications Systems | 2,543 | 2,263 | 280 | |||||||||
Total | $ | 24,362 | $ | 13,083 | $ | 11,279 | ||||||
54 | % | 46 | % |
Nine-month period ended September 30, 2022:
Total Revenue | United | Non-United | ||||||||||
Battery & Energy Products | $ | 87,873 | $ | 41,303 | $ | 46,570 | ||||||
Communications Systems | 7,860 | 6,609 | 1,251 | |||||||||
Total | $ | 95,733 | $ | 47,912 | $ | 47,821 | ||||||
50 | % | 50 | % |
Nine-month period ended September 30, 2021:
Total Revenue | United | Non-United | ||||||||||
Battery & Energy Products | $ | 64,994 | $ | 32,344 | $ | 32,650 | ||||||
Communications Systems | 9,510 | 4,670 | 4,840 | |||||||||
Total | $ | 74,504 | $ | 37,014 | $ | 37,490 | ||||||
50 | % | 50 | % |
Nine-month period ended September 30, 2020:
Total Revenue | United States | Non-United States | ||||||||||
Battery & Energy Products | $ | 66,616 | $ | 36,299 | $ | 30,317 | ||||||
Communications Systems | 12,120 | 10,840 | 1,280 | |||||||||
Total | $ | 78,736 | $ | 47,139 | $ | 31,597 | ||||||
60 | % | 40 | % |
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 effectscontinued impact of COVID-19 and the novel coronavirus disease of 2019 (“COVID-19”);related supply chain disruptions on our business, operating results and financial condition; our reliance on certain key customers; reduced U.S. and foreign military spending including the uncertainty associated with government budget approvals; our efforts to develop new commercial applications for our products; fluctuations in the price of oil and the resulting impact on the demand for downhole drilling; the unique risks associated with our China operations; potential disruptions in our supply of raw materials and components; our ability to retain top management and key personnel; possible breaches in information systems security and other disruptions in our information technology systems; our resources being overwhelmed by our growth; 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 ofattributable to the warranties we supply with our products and services; potential disruptions insafety risks related to the nature of our supply of raw materials and components; our efforts to develop new commercial applications for our products; reduced U.S. and foreign military spendingproducts, including the uncertainty associated with government budget approvals; possible breaches in security and other disruptions;risk of fire; 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; our exposure to foreign currency fluctuations; negative publicity concerning Lithium-ion batteries; possible impairments of our goodwill and other intangible assets; negative publicity concerning Lithium-ion batteries; our exposureability to foreign currency fluctuations;utilize our net operating loss carryforwards; 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”;known and unknown environmental matters; possible audits of our contracts by the U.S. and foreign governments and their respective defense agencies; known and unknown environmental matters;our ability to comply with government regulations regarding the use of “conflict minerals”; technological innovations by our competitors 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,” “seek,” “project,” “intend,” ��plan,“plan,” “may,” “will,” “should,” or words of similar import and in each case, their negatives, 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, 2020.2021.
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 Form 10-Q or our Annual Report on Form 10-K for the year ended December 31, 20202021 to reflect new information or risks, future events or other developments.
The following discussionManagement’s Discussion and analysisAnalysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statementsconsolidated financial statements and Notesnotes thereto in Part I, Item 1 of this Form 10-Q, and the Consolidated Financial Statementsconsolidated financial statements and Notesnotes thereto and Risk Factorsrisk factors in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
The financial information in this Management’s Discussion and Analysis of Financial Condition and Results of OperationsMD&A is presented in thousands of dollars, except for share and per share amounts, unless otherwise specified.
General
We offer products and services ranging from power solutions to communications and electronics systems to customers across the globe in the government, defense and commercial sectors. With an emphasis on strong engineering and a collaborative approach to problem solving, we design and manufacture power and communications systems including: rechargeable and non-rechargeable batteries, charging systems, communications and electronics systems and accessories, and custom engineered systems.systems related to those product lines. We continually evaluate and implement growth opportunities,ways to grow, including the design, development and sale of new products, expansionpenetration of new markets and territories by 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 internationalforeign defense departments. We enjoy strong name recognition in our markets under our Ultralife® Batteries, Lithium Power®, McDowell Research®, AMTI™AMTITM, ABLE™ABLETM, ACCUTRONICS™, ACCUPRO™, ENTELLION™, SWE Southwest Electronic Energy Group™, SWE DRILL-DATA™, and SWE SEASAFE™, Excell Battery Group and Criterion Gauge 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 10 in11 to the Notes to Consolidated Financial Statementsconsolidated financial statements of this Form 10-Q.10-Q for further information.
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 COVID-19 pandemic 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 implementingfollowing the protocols established by public health officials and on 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 business operations at all our facilities with the exception of an approximately one-month closurethe well-publicized shutdowns in China which impacted our Shenzhen facility in the first quarter of our China facility as was mandated by the Chinese government through early March 2020.
For the quarter ended September 30, 2021,2022. The COVID-19 related supply chain disruptions including increased lead times on key components experienced within our business and by our customers, impacted our work schedules and timing of shipments. The continuing impact of these conditions on our business is uncertain and will depend on many evolving factors which we continue to monitor but cannot predict, including the duration, severity and scope of the pandemic and its variants, the resulting actions taken by governments, businesses and individuals, and the flow-through impact on operations and supply chains. Potential ramifications from suppliersCOVID-19 that may continue to adversely impact our future 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 for our products or remain solvent, and reduced availability of our workforce. Prolonged adverse effects of COVID-19 on our business could result in the impairment of long-lived assets including goodwill and other intangible assets. Further, we cannot predict all possible adverse effects the COVID-19 related logistics matters resultedpandemic may cause. Consequently, there may be adverse effects in delays inaddition to those described above. We will continue to closely monitor the developments surrounding COVID-19 and take actions when possible to mitigate the business risks involved and the potential effects of COVID-19 on our shipments to future periods. For the quarter ended September 30, 2021, we estimate that such delayed shipments adversely impacted revenues by approximately $4,100, operating income by approximately $1,300 and adjusted EPS by approximately $0.08.business.
Overview
Consolidated revenues of $33,234 for the three-month period ended September 30, 2022, increased by $11,473 or 52.7%, over $21,761 for the three-month period ended September 30, 2021, reflecting the revenues of Excell Battery Group (“Excell”) acquired on December 13, 2021, and increased sales in our government/defense, oil & gas and industrial battery markets, partially offset by lower revenues for medical which was due to delayed sales caused by component shortages. Government/defense revenues of $10,356 increased $5,174 or 99.8% over the 2021 period, and excluding Excell, commercial revenues of $16,007 for the quarter ended September 30, 2022 decreased by $2,601$572 or 10.7%,3.5% from $24,362the year-earlier period. Including the operations of Excell, commercial revenues were $22,878.
Gross profit was $6,715, or 20.2% of revenue, for the three-month period ended September 30, 2020, as a 5.1% increase in commercial sales was offset by 39.7% decline in government/defense sales. The increase in commercial sales primarily resulted from an 89.5% increase in oil & gas battery sales and a 115.8% increase in our new ER and thin cell battery sales, partially offset by a 28.3% decrease in medical battery sales. The decrease in government/defense sales primarily resulted from the completion of an order for BA-5390 batteries2022, compared to the U.S. Department of Defense in the third quarter of 2020 under a spot purchase announced in December 2019, and lower shipments for our Communications Systems business segment. During the third quarter of 2021, increased lead times on components from suppliers and other COVID-19 related logistics matters resulted in delays in our shipments to future periods. We estimate that the delayed shipments adversely impacted revenue for the 2021 third quarter by $4,100, with $1,700 and $2,400 impacting our commercial and government/defense businesses, respectively.
Gross profit was $5,108, or 23.5% of revenue, compared to $6,511, or 26.7% of revenue, for the same quarter a year ago. The 320-basis330-basis point decreasedecline primarily resulted from unfavorable sales product mix and lower factory volumesreflects incremental costs in 2022 associated with supply chain disruptions including component cost inflation, manufacturing inefficiencies resulting from prolonged lead times and logistics delays, and the revenue decline.transitioning of new products to high volume production.
Operating expenses slightly increased to $5,887 during$7,301 for the three-month period ended September 30, 2021, from $5,804 during2022, compared to $5,887 for the three-month period ended September 30, 2020.2021. The increase of $83$1,414 or 1.4%24.0% was primarily attributable to our continued investment in engineering resources foracquisition of Excell which contributed operating expenses of $1,115. Excluding Excell, operating expenses increased by $299 or 5.1% reflecting increased new product development including resources dedicated to our Conformal Wear Battery IDIQ contract announced on May 17, 2021.costs, travel expenses and sales commissions, as well as inflationary cost increases. Operating expenses as a percentage of sales increased 330decreased 500 basis points from 23.8%27.0% for the third quarter of 20202021 to 27.1%22.0% for the current quarter.quarter highlighting our continued control over discretionary spending and positive sales leverage.
Operating loss for the three-month period ended September 30, 20212022 was ($779) or (3.6%) of revenues$586, compared to operating incomea loss of $707 or 2.9% of revenues$779, for the year-earlier period. The decrease in the operating income primarilyloss resulted from lowerhigher sales from both of our business segments, offset in large part by a reduction in gross margin due to increased costs resulting from supply chain disruptions, including inflationary cost pressures and higher new product development costs to support our organic growth initiatives.prolonged component lead times and logistical delays causing manufacturing inefficiencies.
Net loss attributable to Ultralife was $239, or ($585),0.01) per share – basic and diluted, for the three-month period ended September 30, 2022, compared to net loss attributable to Ultralife of $585, or ($0.04) per share – basic and diluted, for the three-month period ended September 30, 2021, compared to2021. The reduction of net income of $407, or $0.03 per share – basic and diluted, forloss resulted from higher revenues in the three-month period ended September 30, 2020. Adjusted EPS was ($0.05) on a diluted basis for the third quarter of 2021, compared to $0.04 for the 2020 period. Adjusted EPS excludes the (benefit) provision for deferred income taxes of ($218) and $188 for the 2021 and 2020 periods, respectively, which primarily represents non-cash (benefits) charges for U.S. income taxes which we expect will be fully offset by NOL carryforwards and other tax credits for the foreseeable future. See the section “Adjusted EPS” beginning on Page 23 for a reconciliation of Adjusted EPS to EPS.2022 quarter.
Adjusted EBITDA, defined as net income (loss) attributable to Ultralife before net interest expense, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus expenses/income that we do not consider reflective of our ongoing operations, amounted to $283$1,255, or 1.3% of revenues in the third quarter of 2021, compared to $1,656 or 6.8%3.8% of revenues for the third quarter of 2020.2022, compared to $283, or 1.3% of revenues, for the third quarter of 2021. See the section “Adjusted EBITDA” beginning on Page 2226 for a reconciliation of Adjustedadjusted EBITDA to net income attributable to Ultralife.
AsWith a backlog now over $100,000, we look ahead, our strong balance sheetare positioned well for near-term revenue increases and liquidity position,remain committed to advancing several transformational projects and new product initiatives, and durable customer relationships anchor our view that ouropportunities to drive long-term growth drivers and strategy are sound and achievable.revenue growth.
Results of Operations
Three-Month Periods Ended September 30, 20212022 and September 30, 20202021
Revenues. Consolidated revenues for the three-month period ended September 30, 2021 amounted to2022 were $33,234, an increase of $11,473, or 52.7%, over $21,761 a decrease of $2,601 or 10.7%, from $24,362 for the three-month period ended September 30, 2020.2021. Overall, government/defense sales increased 99.8%, or $5,174, and commercial sales increased $80738.0%, or 5.1% while government/defense sales decreased $3,408 or 39.7%$6,299, from the 20202021 period. Revenues for the 2022 period include the results of Excell which was acquired by the Company on December 13, 2021. Our revenue backlog, consisting of committed firm orders, was $106,200 at September 30, 2022, an increase of 34.1% over the backlog at June 30, 2022 and 154% over the backlog at September 30, 2021.
Battery & Energy Products revenues decreased $1,811,increased $8,575, or 8.3%42.9%, from $21,819 for the three-month period ended September 30, 2020 to $20,008 for the three-month period ended September 30, 2021.2021 to $28,583 for the three-month period ended September 30, 2022. The decrease primarily resulted from a $2,950 or 28.3% decrease in medical battery sales primarily dueincrease was attributable to the high volume$6,870 revenue contribution from the acquisition of orders in 2020 for respirators, ventilators and infusion pumps to meet the sector’s initial response to COVID-19, andExcell, coupled with a $2,61866.4%, or 43.3% decrease$2,276, increase in government/defense sales, primarily due to the shipment of BA-5390 batteries to the U.S. Department of Defense under a spot purchase announced in December 2019 and completed in 2020, partially offset by a $2,0317.4%, or 89.5%$318, increase in oil & gas market sales reflectingand a 2.4%, or $116, increase in industrial market sales, partially offset by a 12.1%, or $904, decrease in medical sales. Net sales for this segment, excluding the recent reboundresults of Excell, increased 8.5%, or $1,706. The increase in government/defense sales primarily resulted from strong order flow from a large global defense prime contractor. The increase in oil & gas market sales was driven by higher demand for our battery packs for downhole drilling in both U.S. and international markets. The decline in medical sales resulted from component shortages in the energy sector and a $1,135 or 115.8% increasecurrent quarter to fulfill the increased demand for our products. The revenue backlog for this segment is now at its highest level in our new ER and thin cell battery cells. For the third quarter of 2021, we estimate that shipments delayed to future periods due to increased lead times on components from suppliers and other COVID-19 related logistics matters adversely impacted Battery & Energy Products revenue by $2,500.Company’s history.
Communications Systems revenues decreased $790,increased $2,898, or 30.9%165.3%, from $2,543 during the three-month period ended September 30, 2020 to $1,753 for the three-month period ended September 30, 2021. For2021 to $4,651 for the third quarterthree-month period ended September 30, 2022. This increase is primarily attributable to our receipt of 2021, we estimate thatcomponents to commence the fulfillment of modest shipments delayed to future periods due to increased lead times on components from suppliers and other COVID-19 related logistics matters adversely impacted Communications Systems revenue by $1,600.under various large program awards.
Cost of Products Sold / Gross Profit. CostConsolidated cost of products sold totaled $16,653$26,519 for the quarter ended September 30, 2021, a decrease2022, an increase of $1,198,$9,866, or 6.7%59.2%, from the $17,851$16,653 reported for the same quarterthree-month period a year ago. Consolidated cost of products sold as a percentage of total revenue increased from 73.3% for the three-month period ended September 30, 2020 to 76.5% for the three-month period ended September 30, 2021. Correspondingly, consolidated gross margin decreased from 26.7%2021 to 79.8% for the three-month period ended September 30, 2020, to2022. Correspondingly, consolidated gross margin decreased from 23.5% for the three-month period ended September 30, 2021, to 20.2% for the three-month period ended September 30, 2022, primarily reflecting unfavorable sales product mixincreased costs attributable to ongoing component cost inflation, manufacturing inefficiencies related to prolonged lead times and lower factorylogistics delays, and the incremental costs of transitioning new products to higher volume for both business segments.production.
For our Battery & Energy Products segment, gross profit for the third quarter of 20212022 was $4,792, a decrease$5,345, an increase of $885$553 or 15.6% from11.5% over gross profit of $5,677$4,792 for the third quarter of 2020.2021. Battery & Energy Products’ gross margin of 24.0%18.7% decreased by 200530 basis points from the 26.0%24.0% gross margin for the year-earlier period, primarily reflecting unfavorable sales product mixrapid cost inflation on components not fully aligned with customer price increases, manufacturing inefficiencies associated with component availability, prolonged lead times and lower factory volume.related logistics delays impacting timely deliveries, and incremental costs associated with the transition of new products to higher volume production.
For our Communications Systems segment, gross profit for the third quarter of 20212022 was $1,370 or 29.5% of revenues, compared to gross profit of $316 or 18.0% of revenues, a decrease of $518 or 62.1%, from gross profit of $834, or 32.8% of revenues, for the third quarter of 2020.2021. The decreaseincrease was primarily reflects lowerdue to higher factory volume in the 2021 third quarter.and favorable sales mix.
Operating Expenses. OperatingConsolidated operating expenses for the three-month period ended September 30, 20212022 were $5,887,$7,301, an increase of $83$1,414 or 1.4%24.0% from the $5,804$5,887 for the three-month period ended September 30, 2020.2021. The increase inis primarily attributable to the acquisition of Excell, which contributed operating expenses reflects our continued investmentof $1,115 in engineering resources forthe third quarter, including $181 of intangible asset amortization. Excluding Excell, operating expenses increased $299 or 5.1% due to increased new product development, including resources dedicated to the Conformal Wear Battery IDIQ contract announced on May 17, 2021.travel, and sales commissions, as well as inflationary cost increases. Both periods reflected our continued tight control over discretionary spending.
Overall, operating expenses as a percentage of revenues were 22.0% for the quarter ended September 30, 2022 compared to 27.1% for the quarter ended September 30, 2021 resulting from sales leverage and 23.8% for the quarter ended September 30, 2020.control over discretionary spending. Amortization expense associated with intangible assets related to our acquisitions was $318 for the third quarter of 2022 ($295 in selling, general and administrative expenses and $23 in research and development costs), compared with $148 for the third quarter of 2021 ($121 in selling, general, and administrative expenses and $27 in research and development costs), compared with $149 for the third quarter of 2020 ($118 in selling, general, and administrative expenses and $31 in research and development costs). Research and development costs were $1,723$1,896 for the three-month period ended September 30, 2021,2022, an increase of $117$173 or 7.3%10.0%, from $1,606$1,723 for the three-months ended September 30, 2020.2021. The increase is largely attributable to the hiringoperations of engineering resources to support new product developmentExcell, acquired in December 2021, and increased investments in our Battery & Energy ProductsCommunications Systems business segment.to develop new products expanding the business into select commercial markets. Selling, general, and administrative expenses decreased $34increased $1,241 or 0.8%29.8%, to $5,405 for the third quarter of 2022 from $4,164 for the third quarter of 2021 from $4,1982021. The increase is mostly attributable to the operations of Excell which contributed $1,026 of selling, general and administrative expenses, including intangible asset amortization of $181, for the third quarter of 2020. The slight decrease resulted from our continued tight control over all discretionary spending.2022, with the remainder reflecting inflationary cost increases.
Other (Income) Expense.Income Taxes. Other income totaled ($1) forFor the three-month period ended September 30, 2021 compared to other expense of $53 for the three-month period ended September 30, 2020. Interest and financing expense, net of interest income, decreased $39, or 42.3%, from $92 for the third quarter of 2020 to $53 for the comparable period in 2021. The decrease is primarily due to the continued reduction of debt incurred in connection with the financing of the SWE acquisition. Miscellaneous income of $54 for the third quarter of 2021 compared to miscellaneous income of $39 for the third quarter of 2020 represents foreign currency exchange gains and losses particularly for certain transactions and balances of Accutronics (U.K.) denominated in U.S. dollars. The U.S. dollar strengthened against the Pound Sterling by approximately 3% during the third quarter of 2021 and the U.S. dollar weakened against the Pound Sterling by approximately 4% during the third quarter of 2020.
Income Taxes. The2022, Ultralife recognized an income tax benefit for the 2021 third quarter was ($175) compared to a provision of $192 for the third quarter of 2020. Our effective income tax rate was (22.4%) for the third quarter of 2021 as compared to 29.4% for the third quarter of 2020, primarily due to the geographic mix of earnings. The income tax benefit for the third quarter of 2021 is$90, comprised of a $43$218 current provision for taxes expected to be paid on income primarily from our foreignnon-U.S. operations, representingand a cash-based effective$308 deferred benefit, compared to an income tax ratebenefit of (5.5%), and a ($218) deferred income tax benefit. For$175 for the 2020three-month period the income tax provision wasended September 30, 2021, comprised of a $4$43 current tax provision representingand a cash-based$218 deferred benefit. Our effective tax rate was 27.1% for the third quarter of 0.6%, and a $188 deferred2022 as compared to 22.5% for the third quarter of 2021, primarily attributable to the geographic mix of our operating results, including income tax provision.generated in Canada by Excell for the current year. See Note 6 in7 to the Notes to Consolidated Financial Statementsconsolidated financial statements in Item 1 of Part I of this Form 10-Q for additional information regarding our income taxes.further information.
Net (Loss) IncomeLoss Attributable to Ultralife. Net (loss)loss attributable to Ultralife was $239, or ($585),0.01) per share – basic and diluted, for the three-month period ended September 30, 2022, compared to net loss attributable to Ultralife of $585, or ($0.04) per share – basic and diluted, for the three-month period ended September 30, 2021, compared2021. The reduction in net loss is primarily attributable to net income of $407, or $0.03 per share – basic and diluted,higher sales for the three-month period ended September 30, 2020. Adjusted EPS was ($0.05) on a diluted basis for the third quarter of 2021, compared to $0.04 on a diluted basis for the third quarter of 2020. Adjusted EPS excludes the (benefit) provision for deferred income taxes of ($218) and $188 for the 2021 and 2020 periods, respectively, which primarily represents non-cash (benefits) charges for U.S. income taxes. See the section “Adjusted EPS” beginning on Page 23 for a reconciliation of Adjusted EPS to EPS.2022 quarter. Weighted average common shares outstanding used to compute diluted earnings per share decreasedincreased from 16,089,170 for the third quarter of 2020 to 16,065,412 for the third quarter of 2021. The period over period decrease is attributable2021 to the antidilutive effect of all outstanding stock awards16,133,069 for the current period partially offset bythird quarter of 2022 as a result of stock option exercises and vesting of restricted stock awards since the third quarter of 2020.2021.
Nine-Month Periods Ended September 30, 20212022 and September 30, 20202021
Revenues. Consolidated revenues for the nine-month period ended September 30, 2021 amounted to2022 were $95,733, an increase of $21,229, or 28.5%, over $74,504 a decrease of $4,232 or 5.4%, from the $78,736 reported for the nine-month period ended September 30, 2020.2021. Overall, commercial sales increased $189 or 0.4% and49.5% while government/defense sales decreased $4,421 or 13.8%7.2% from the nine-month 20202021 period. Revenues for the 2022 period include the operations of Excell which was acquired by the Company on December 13, 2021.
Battery & Energy Products revenues decreased $1,622,increased $22,879, or 2.4%35.2%, from $66,616 for the nine-month period ended September 30, 2020 to $64,994 for the nine-month period ended September 30, 2021.2021 to $87,873 for the nine-month period ended September 30, 2022. The declineincrease was attributable to the $19,898 revenue contribution from the operations of Excell, and a $1,811 or 9.1% decrease7.1% increase in government/defensecommercial sales excluding Excell, partially offset by a $189 or 0.4% increase in commercial sales. The decrease1.9% reduction in government/defense sales primarily reflects $2,800 of shipments of 5390 batteries to the U.S. Department of Defense under a spot purchase announced in December 2019 and completed in 2020.sales. The increase in commercial sales, primarily resulted fromexcluding Excell, was driven by a $1,933 or 17.8%11.0% increase in oil & gas market sales andreflecting the rebound in the energy sector, a $1,932 or 74.2%9.6% increase in industrial market sales including our new ERThionyl Chloride and thin cell battery sales, partially offset primarily bycells, and a $3,898 or 15.7% decrease3.9% increase in medical sales. Duringbattery sales due to the first nine months of 2021, we estimate that the negative net impact caused byhigh demand for our batteries used in ventilators, respirators, infusion pumps and other medical devices. The decline in government/defense sales was primarily due to supply chain disruptions experienced internally and other COVID-19 related logistics matters on Battery & Energy Products revenues was $4,600.by our customers which pushed out sales to future periods.
Communications Systems revenues decreased $2,610,$1,650, or 21.5%17.4%, from $12,120 during the nine-month period ended September 30, 2020 to $9,510 for the nine-month period ended September 30, 2021.2021 to $7,860 for the nine-month period ended September 30, 2022. This decrease is primarily attributable to 2020 shipments of vehicle amplifier-adaptor systems in the amount of $5,680 to support the U.S. Army’s Network Modernization initiatives completing the delivery orders announced in October 2018. During the first nine months of 2021, we estimate that the negative net impact from supply chain disruptions including extended lead times for components causing delays in our shipments to customers, and other COVID-19 related logistics matters on Communications Systems revenues was $3,000.the push out of certain orders by our customers to future periods.
Cost of Products Sold / Gross Profit.Cost Consolidated cost of products sold totaled $55,151$74,414 for the nine-month period ended September 30, 2021, a decrease2022, an increase of $1,777$19,263, or 3.1%34.9%, from the $56,928$55,151 reported for the same nine-month period a year ago. Consolidated cost of products sold as a percentage of total revenue increased from 72.3% for the nine-month period ended September 30, 2020 to 74.0% for the nine-month period ended September 30, 2021.2021 to 77.7% for the nine-month period ended September 30, 2022. Correspondingly, consolidated gross margin wasdecreased from 26.0% for the nine-month period ended September 30, 2021, compared with 27.7%to 22.3% for the nine-month period ended September 30, 2020, due2022, primarily to unfavorable sales product mix andreflecting lower factory volume.volume for our Communications Systems segment, incremental costs in 2022 associated with supply chain disruptions, including rapid and continuous increases in the cost of some key components, manufacturing inefficiencies caused by component availability, extended lead times and logistical delays impacting timely deliveries, and the transition of new products to higher volume production.
For our Battery & Energy Products segment, the cost of products sold decreased $847 or 1.7%, from $49,597 during the nine-month period ended September 30, 2020 to $48,750 during the nine-month period ended September 30, 2021. Battery & Energy Products’ gross profit for the 2021 nine-month period was $16,244 or 25.0% of revenues, a decrease of $775 or 4.6% from gross profit of $17,019, or 25.5% of revenues, for the 2020 nine-month period. Battery & Energy Products’ gross margin decreased for the nine-month period ended September 30, 2021 by 50 basis points, primarily due to unfavorable sales product mix and lower factory volume.
For our Communications Systems segment, the cost of products sold decreased by $930 or 12.7% from $7,331 during the nine-month period ended September 30, 2020 to $6,401 during the nine-month period ended September 30, 2021. Communications Systems’ gross profit for the first nine months of 2022 was $19,217, an increase of $2,973 or 18.3% over gross profit of $16,244 for the comparable 2021 period. Battery & Energy Products’ gross margin of 21.9% decreased by 310 basis points from the 25.0% gross margin for the year-earlier period, reflecting rapid cost inflation on components not fully aligned with customer price increases, manufacturing inefficiencies associated with component availability, lead times and related logistics impacting timely deliveries, and incremental costs associated with the transition of new products to higher volume production.
For our Communications Systems segment, gross profit for the first nine months of 2022 was $2,102 or 26.7% of revenues, compared to gross profit of $3,109 or 32.7% of revenues, a decrease of $1,680 or 35.1% from gross profit of $4,789 or 39.5% of revenues, for the nine-month period ended September 30, 2020.comparable 2021 period. The decrease in gross margindecline was primarily reflects the favorable sales mix in 2020 of the vehicle amplifier-adaptor systems for the U.S. Army anddue to lower factory volume resulting in 2021.the under-absorption of factory costs and unfavorable sales mix experienced during the first nine months of 2022.
Operating Expenses.Total Consolidated operating expenses for the nine-month period ended September 30, 2021 totaled $18,089,2022 were $21,407, an increase of $767$3,318 or 4.4%18.3% from the $17,322$18,089 for the nine-month period ended September 30, 2020.2021. The increase inis primarily attributable to the acquisition of Excell, which contributed operating expenses reflects our continued investment in engineering resourcesof $3,258 for new product development,the first nine months of 2022, including resources dedicated to the Conformal Wear Battery IDIQ contract announced on May 17, 2021.$545 of intangible asset amortization and one-time acquisition costs of $70. Excluding Excell, operating expenses increased $60 or 0.3%. Both periods reflected our continued tight control over discretionary spending.
Overall, operating expenses as a percentage of revenues were 22.4% for the nine-month period ended September 30, 2022 compared to 24.3% for the nine-month period ended September 30, 2021 compared to 22.0% for the comparable 2020 period.2021. Amortization expense associated with intangible assets related to our acquisitions was $969 for the first nine months of 2022 ($895 in selling, general and administrative expenses and $74 in research and development costs), compared with $458 for the first nine months of 2021 ($365 in selling, general, and administrative expenses and $93 in research and development costs), compared with $444 for the first nine months of 2020 ($352 in selling, general and administrative expenses and $92 in research and development costs). Research and development costs were $5,223$5,425 for the nine-month period ended September 30, 20212022, an increase of $794$202 or 17.9% over $4,4293.9%, from $5,223 for the nine monthsnine-months ended September 30, 2020.2021. The increase is largely attributable to the hiringour acquisition of engineering resources to support new product development in our Battery & Energy Products business segment.Excell. Selling, general, and administrative expenses decreased $27increased $3,116 or 0.2% from $12,893 during24.2%, to $15,982 for the first nine months of 20202022 from $12,866 for the comparable 2021 period. The increase is attributable to $12,866 during the first nine monthsDecember 2021 acquisition of 2021, primarily reflecting a 3.6% increase inExcell which contributed $3,011 of selling, expenses for sales resources to support our new product market launches virtually, offset by a 1.5% decrease in general and administrative expenses.expenses, including intangible asset amortization of $545, for the 2022 period.
Other (Income) Expense.Other income totaled $22 for the nine-month period ended September 30, 2022 compared to other expense totaledof $76 for the nine-month period ended September 30, 2021 compared to $262 for the nine-month period ended September 30, 2020.2021. Interest and financing expense net of interest income, decreased $208,increased $419, or 55.9%255.5%, tofrom $164 for the 2021 period from $372 for the comparable period in 2020, as a result of the continued reduction of debt incurred with the financing for the SWE acquisition. Miscellaneous income amounted to ($88) for the first nine months of 2021 compared with miscellaneous income of ($110)to $583 for the first nine months of 2020,2022. The increase is primarily due to fluctuations in the U.S. dollar relativefinancing of the Excell Acquisition. Miscellaneous income amounted to $605 for the Pound Sterling.first nine months of 2022 compared with $88 for the 2021 period, primarily representing foreign currency exchange gains on U.S.-denominated transactions and balances of our non-U.S. businesses.
Income Taxes.We For the nine-month period ended September 30, 2022, Ultralife recognized an income tax benefit of $171, comprised of a $512 current provision for income taxes expected to be paid on income primarily from our non-U.S. operations, and a $683 deferred benefit, compared to an income tax provision of $290 for the first three quartersprior year same period, comprised of 2021 compared with an incomea $163 current provision and a $127 deferred provision. Our effective tax provision of $1,010rate was 259.1% for the first three quartersnine months of 2020. Our effective income tax rate increased2022 as compared to 24.4% for the first nine months of 2021 as compared to 23.9% for the first nine months of 2020, primarily dueattributable to the geographic mix of earnings. Theour operating results, including income tax provisiongenerated in Canada by Excell and the larger effect of permanent and discrete adjustments for the 2021 period is comprised of a $163 current provision for taxes expected to be paid on income from our foreign operations, representing a cash-based effective income tax rate of 13.7%, and a $127 deferred income tax provision which primarily represents non-cash charges for U.S. income taxes which we expect will be fully offset by NOL carryforwards and other tax credits for the foreseeable future. For the 2020 period, the income tax provision was comprised of a $189 current income tax provision, representing a cash-based effective income tax rate of 4.5%, and a non-cash $821 deferred provision for income taxes.year. See Note 67 to the consolidated financial statements in the Notes to Consolidated Financial StatementsItem 1 of Part I of this Form 10-Q for additional information regarding our income taxes.further information.
Net Income Attributable to Ultralife.Net income attributable to Ultralife was $105, or $0.01 per share – basic and net income attributable to Ultralife common stockholders per diluted, share was $897 and $‐‐‐0.06, respectively, for the nine monthsnine-month period ended September 30, 2021,2022, compared to $3,124$897, or $0.06 per share – basic and $0.19diluted, for the nine monthsnine-month period ended September 30, 2020.2021. Weighted average common shares outstanding used to compute diluted earnings per share increaseddecreased from 16,102,879 for the 2020 period to 16,199,693 for the 2021 period primarilyto 16,144,165 for the 2022 period. The decrease is attributable to stock option exercises since the third quarter of 2020 and an increase2021 offset by the anti-dilutive effect of the decrease in the average stock price used to compute diluted shares from $6.89 for the first nine months of 2020 to $7.94 for the first nine months of 2021.2021 to $5.00 for the first nine months of 2022. Accordingly, potential common shares used to compute diluted earnings per share decreased from 179,951 for the 2021 period to 22,203 for the 2022 period.
Adjusted EBITDA
In evaluating our business, we consider and use Adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure of our operating performance. We define Adjusted EBITDA as net income (loss) attributable to Ultralife before interest expense, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense, plus/minus expenses/expense/income that we do not consider reflective of our ongoing continuing operations. We also use Adjusted EBITDA as a supplemental measure to review and assess our operating performance and to enhance comparability between periods. We believe the use of Adjusted EBITDA facilitates investors’ understanding of operating performance from period to period by backing out potential differences caused by variations in such items as capital structures (affecting relative interest expense and stock-based compensation expense), the amortization of intangible assets acquired through our business acquisitions (affecting relative amortization expense and provision (benefit) for income taxes), the age and book value of facilities and equipment (affecting relative depreciation expense) and one-time charges/benefits relating to income taxes. We also present Adjusted EBITDA from operations because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance. We reconcile Adjusted EBITDA to net income (loss) attributable to Ultralife, the most comparable financial measure under GAAP.
We use Adjusted EBITDA in our decision-making processes relating to the operation of our business together with GAAP financial measures such as operating income.income (loss). We believe that Adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on our GAAP results, while 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 (loss), operating performance or liquidity presented in accordance with GAAP. Our Adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, Adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss) attributable to Ultralife or other consolidated statement of operations data prepared in accordance with GAAP. Some of these limitations include, but are not limited to, the following:
● | 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 |
● | 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 (loss) attributable to Ultralife.
Adjusted EBITDA is calculated as follows for the periods presented:
Three-Month Period Ended | Nine-Month Period Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net (loss) income attributable to Ultralife Corporation | $ | (585 | ) | $ | 407 | $ | 897 | $ | 3,124 | |||||||
Adjustments: | ||||||||||||||||
Interest expense | 53 | 92 | 164 | 372 | ||||||||||||
Income tax (benefit) provision | (175 | ) | 192 | 290 | 1,010 | |||||||||||
Depreciation expense | 700 | 582 | 2,160 | 1,743 | ||||||||||||
Amortization expense | 148 | 161 | 458 | 480 | ||||||||||||
Stock-based compensation expense | 142 | 222 | 512 | 756 | ||||||||||||
Adjusted EBITDA | $ | 283 | $ | 1,656 | $ | 4,481 | $ | 7,485 |
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 (loss) attributable to Ultralife Corporation, excluding the provision (benefit) for deferred income taxes, divided by our weighted average shares outstanding on both a basic and diluted basis. We believe that this information is useful in providing period-to-period comparisons of our results by reflecting the portion of our income tax provision (benefit) that we expect will be offset by our U.S. NOL 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 (loss) attributable to Ultralife.
Adjusted EPS is calculated as follows for the periods presented:
Three-Month Period Ended | ||||||||||||||||||||||||
September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
Amount | Per Basic Share | Per Diluted Share | Amount | Per Basic Share | Per Diluted Share | |||||||||||||||||||
Net (loss) income attributable to Ultralife Corporation | $ | (585 | ) | $ | (.04 | ) | $ | (.04 | ) | $ | 407 | $ | .03 | $ | .03 | |||||||||
Deferred income tax (benefit) provision | (218 | ) | (.01 | ) | (.01 | ) | 188 | .01 | .01 | |||||||||||||||
Adjusted net (loss) income attributable to Ultralife Corporation | $ | (803 | ) | $ | (.05 | ) | $ | (.05 | ) | $ | 595 | $ | .04 | $ | .04 | |||||||||
Weighted average shares outstanding | 16,065 | 16,065 | 15,908 | 16,089 |
Nine-Month Period Ended | ||||||||||||||||||||||||
September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
Amount | Per Basic Share | Per Diluted Share | Amount | Per Basic Share | Per Diluted Share | |||||||||||||||||||
Net income attributable to Ultralife Corporation | $ | 897 | $ | .06 | $ | .06 | $ | 3,124 | $ | .20 | $ | .19 | ||||||||||||
Deferred income tax provision | 127 | - | - | 821 | .05 | .05 | ||||||||||||||||||
Adjusted net income attributable to Ultralife Corporation | $ | 1,024 | $ | .06 | $ | .06 | $ | 3,945 | $ | .25 | $ | .24 | ||||||||||||
Weighted average shares outstanding | 16,020 | 16,200 | 15,889 | 16,103 |
Three-Month Period Ended | Nine-Month Period Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net (loss) income attributable to Ultralife Corporation | $ | (239 | ) | $ | (585 | ) | $ | 105 | $ | 897 | ||||||
Add: | ||||||||||||||||
Interest and financing expense | 272 | 53 | 583 | 164 | ||||||||||||
Income tax (benefit) provision | (90 | ) | (175 | ) | (171 | ) | 290 | |||||||||
Depreciation expense | 815 | 700 | 2,450 | 2,160 | ||||||||||||
Amortization expense | 318 | 148 | 969 | 458 | ||||||||||||
Stock-based compensation expense | 179 | 142 | 552 | 512 | ||||||||||||
Non-cash purchase accounting adjustments | - | - | 55 | - | ||||||||||||
Adjusted EBITDA | $ | 1,255 | $ | 283 | $ | 4,543 | $ | 4,481 |
Liquidity and Capital Resources
As of September 30, 2021,2022, cash on hand totaled $15,853$5,051 (including restricted cash of $87)$73), an increasea decrease of $5,200$3,362 as compared to $10,653$8,413 as of cash held at December 31, 2020. The increase was2021, primarily attributable to cash generated from operations, partially offsetthe procurement of inventory to enhance our ability to service orders requested by cash usedcustomers to ship in investing and financing activities.2022 amidst challenging supply chain conditions.
During the nine-month period ended September 30, 2021, operating activities provided2022, cash used in operations was $3,827, as compared to $8,462 generated from operations for the nine-month period ended September 30, 2021. For the 2022 period, we used cash of $8,462, consisting$8,714 to procure inventory to proactively manage our supply chain, reduce lead times and the impact of potential cost increases on components and raw materials, and enhance our position to service customer orders. The increase in inventory and the timing of sales, collections and disbursements resulted in net cash of $7,245 used for working capital, which was partially offset by net income of $898, deferred income taxes of $127,$105 and non-cash net expenses oftotaling $3,313 for depreciation, amortization, and stock-based compensation, totaling $3,208, and a $4,229 reduction in net working capital primarily attributable to a decrease in accounts receivable.deferred taxes.
Cash used in investing activities for the nine months ended September 30, 20212022 was $2,324, primarily attributable$1,396 for capital expenditures, reflecting investments in equipment for new products transitioning to strategic capital investments for our Battery & Energy Products business segment.high-volume manufacturing.
Net cash used inCash provided by financing activities for the nine months ended September 30, 20212022 was $936,$2,097, primarily consisting of $1,186draws from our credit facility for the purchase of principal payments against our remaining term loan balance and $148 of tax withholdings for stockcertain critical raw materials requiring cash-in-advance payment terms by the vendors, plus $105 in net proceeds on stock-based awards, partially offset by stock option exercise proceeds$1,333 of $398.principle payments on our term loan.
We continue to have significant U.S. NOLnet operating loss carryforwards available to utilize as an offset to future taxable income. See Note 67 to the Consolidated Financial Statementsconsolidated financial statements of this Form 10-Q for additional information.
Going forward, we expect that positive operating cash flow and the availability under our Revolving Credit Facility will be sufficient to meet our general funding requirements for the foreseeable future. Over the long-term, we expect that some of our future investments, including strategic business opportunities such as acquisitions, may be made through a number of sources, including internally available cash, availability of borrowing under our Credit Facilities, new debt financing, the issuance of equity securities or any combination of these sources.
To provide flexibility in accessing the capital market, the Company filed a shelf registration statement on Form S-3 on March 30, 2021, which was declared effective by the SEC on April 2, 2021. Under this registration statement, upon the filing of an appropriate supplemental prospectus, we may offer and sell certain of our securities from time to time in one (1) or more offerings, at our discretion, of up to an aggregate offering price of $100 million. We intend to use the net proceeds resulting from any sales of our securities for general corporate purposes which may include, but are not limited to, potential acquisitions of complementary businesses or technologies, strategic capital expenditures to expand and protect our competitive position, and investments in the development of transformational, competitively-differentiated products for attractive growth markets.
Commitments
As of September 30, 2021,2022, the Company had $288$14,330 outstanding principalborrowings on the Revolving Credit Facility and $8,667 on the Term Loan Facility, all of which is included in current portion of long-term debt on the Consolidated Balance Sheet, net of $35 unamortized debt issuance costs, and no amounts outstanding on the Revolving Credit Facility. The Company was in full compliance with all covenants under the Credit Facilities as of September 30, 2021.2022.
As of September 30, 2021,2022, we had made commitments to purchase approximately $1,100$624 of production machinery and equipment.
Critical Accounting Policies
Management exercises judgment in making important decisions pertaining to choosing and applying accounting policies and methodologies in many areas. Not only are these decisions necessary to comply with GAAP, but they also reflect management’s view of the most appropriate manner in which to record and report our overall financial performance. All accounting policies are important, and all policies described in Note 1 (“Summary of Operations and Significant Accounting Policies”) to our Consolidated Financial Statementsthe consolidated financial statements in our 20202021 Annual Report on Form 10-K and Note 1 to the consolidated financial statements in Part I of this Form 10-Q should be reviewed for a greater understanding of how our financial performance is recorded and reported.
During the first nine months of 2021,2022, 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.
In addition to the Risk Factors set forth in Item 1A of our Form 10-K for the year ended December 31, 2021, as filed on March 8, 2022, you should carefully consider the following Risk Factors that we believe are material to our business:
● | Changes in economic conditions, including inflation, rising interest rates, volatile equity capital markets and ongoing supply chain disruptions, have affected and may continue to affect our business, revenues and earnings adversely. |
● | Inflation rates have increased and may continue to rise. Our suppliers have raised their prices and may continue to raise prices that we may not be able to pass on to our customers on a timely manner consistent with the price increases. This affected and may continue to affect our business and profit margins adversely. |
● | Rising interest rates will increase the cost of our variable borrowing rates, may affect our earnings adversely. |
Item 6. Exhibits
Exhibit Index | Exhibit Description | Incorporated by Reference from | ||
31.1 | Filed herewith | |||
31.2 | Filed herewith | |||
32 | Furnished herewith | |||
101.INS | Inline XBRL Instance Document | Filed herewith | ||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed herewith | ||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith | ||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed herewith | ||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed herewith | ||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed herewith | ||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | Filed herewith |
Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 20212022 and December 31, 2020,2021, (ii) Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 20212022 and 2020,2021, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 20212022 and 2020,2021, (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 20212022 and 2020,2021, and (v) Notes to Consolidated Financial StatementsStatements.
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: October 27, 2022 | By: | /s/ Michael D. Popielec | ||
Michael D. Popielec | ||||
President and Chief Executive Officer | ||||
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Principal Accounting Officer) |