Ultralife Corporation (NASDAQ:ULBI), a leading provider of power solutions and communications systems, has delivered an impressive performance in the second quarter of fiscal 2024, showcasing its ability to navigate the dynamic market landscape and drive sustainable growth.
Financial Highlights
For the fiscal year 2023, Ultralife reported annual net income of $7,197,000, annual revenue of $158,644,000, annual operating cash flow of $1,929,000, and annual free cash flow of -$623,000. In the second quarter of 2024, the company reported revenues of $42,983,000, a slight increase of 0.7% compared to the same period in 2023. This top-line growth was driven by an 8.3% increase in the Battery & Energy Products segment, which more than offset a 28.7% decline in the Communications Systems segment.Gross profit for the second quarter of 2024 was $11,563,000, representing a 26.9% gross margin, a significant improvement from the 24.8% gross margin reported in the year-ago quarter. This margin expansion was primarily attributable to higher factory volume, improved production efficiencies, and better price realization in the Battery & Energy Products segment.
Operating expenses increased by 10.4% to $7,646,000, reflecting investments in new product development, the addition of experienced sales resources, and higher executive variable compensation costs. Despite the increase in operating expenses, the company's operating income grew to $3,917,000, or 9.1% of revenues, compared to $3,665,000, or 8.6% of revenues, in the prior-year quarter.
Net income attributable to Ultralife Corporation for the second quarter of 2024 was $2,969,000, or $0.18 per diluted share, compared to $3,340,000, or $0.21 per diluted share, in the same period of 2023. Excluding the impact of non-cash deferred tax provisions, adjusted earnings per share (EPS) was $0.22 for the second quarter of 2024, compared to $0.29 in the prior-year quarter.
Debt Reduction and Balance Sheet Strength
A highlight of the second quarter was the company's significant reduction in debt, which decreased by $13,200,000, or 52.2%, from $25,300,000 to $12,100,000. This debt paydown, coupled with the company's strong operating performance and improved working capital management, has strengthened Ultralife's balance sheet and reduced its interest expense, which will have a positive impact on future earnings.As of June 30, 2024, Ultralife had working capital of $63,200,000 and a current ratio of 4.1, compared to $66,500,000 and 3.8, respectively, at the end of 2023. The company's focus on debt reduction and balance sheet optimization positions it well to continue investing in strategic initiatives and pursue potential accretive acquisitions.
Segment Performance
Battery & Energy Products Segment
The Battery & Energy Products segment, which includes Lithium 9-volt, cylindrical, and other non-rechargeable batteries, as well as rechargeable batteries, uninterruptable power supplies, and charging systems, reported revenues of $36,683,000 in the second quarter of 2024, an increase of 8.3% compared to the same period in 2023. This growth was driven by a 30.5% increase in government/defense sales and a 20.1% increase in medical market sales, partially offset by a 10.9% decline in oil and gas market sales.Gross profit for the Battery & Energy Products segment was $9,953,000, representing a gross margin of 27.1%, a significant improvement from the 22.3% gross margin reported in the year-ago quarter. The increase in gross margin was primarily due to higher factory volume, improved production efficiencies, and better price realization.
Communications Systems Segment
The Communications Systems segment, which includes RF amplifiers, power supplies, cable and connector assemblies, amplified speakers, equipment mounts, case equipment, man-portable systems, and integrated communication systems, reported revenues of $6,300,000, a decrease of 28.7% compared to the second quarter of 2023. This decline was primarily attributable to shipments in the prior-year period of vehicle-amplifier adapter orders to a global defense contractor for the U.S. Army and of integrated systems of amplifiers and radio vehicle mounts to a major international defense contractor, which had been delayed from earlier periods due to supply chain disruptions.Gross profit for the Communications Systems segment was $1,610,000, representing a gross margin of 25.6%, compared to $3,045,000, or 34.5% gross margin, in the year-ago quarter. The decrease in gross margin was primarily due to a less favorable product sales mix.
Operational Initiatives and Outlook
Ultralife's management team has outlined three key priorities for 2024: continued material cost deflation, lean productivity improvements, and sales funnel expansion. The company has made progress on these initiatives, including negotiating favorable logistics contracts, hiring a lean process veteran to drive manufacturing and back-office efficiencies, and adding experienced sales resources to focus on large program wins and commercial sales growth.The company's new product development pipeline remains robust, with several exciting projects underway in both the Battery & Energy Products and Communications Systems segments. These include a new radio-agnostic amplification product, an advanced high-performance amplifier engine, and continued development of the conformal wearable battery for international defense customers.
Ultralife's backlog remains diverse and healthy, totaling $93,000,000 at the end of the second quarter, representing 55% of the company's trailing 12-month sales. Management remains optimistic about the company's ability to sustain profitable growth, generate incremental cash flow to further reduce debt, and invest in strategic capital expenditures and accretive acquisitions.
Geographical Breakdown and Revenue Diversification
Ultralife's revenue mix continues to demonstrate geographic diversification, with the domestic to international sales split at 53-47 in the second quarter of 2024, compared to 49-51 for the full year 2023. The company's focus on expanding its global footprint has helped offset potential volatility in any single market.The commercial to government/defense sales split was 64-36 in the second quarter of 2024, consistent with the full-year 2023 ratio. This balanced revenue mix across end markets provides Ultralife with stability and the ability to capitalize on opportunities in both the commercial and government/defense sectors.