Ultralife Corporation (ULBI)

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Ultralife Corporation (ULBI)

Q4 2008 Earnings Call

February 12, 2009 10:00 AM ET


Jody Burfening - Managing Director, Lippert/Heilshorn & Associates

John D. Kavazanjian - President and Chief Executive Officer

Robert W. Fishback - Vice President of Finance and Chief Financial Officer

William A. Schmitz - Chief Operating Officer


James McIlree - Collins Stewart

Ted Kundtz - Needham & Company

Richard Baxter - Ardour Capital investments

Steve Sanders - Stephens Inc.



Good day and welcome to this Ultralife Corporation Fourth Quarter Earnings Release Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Ms. Jody Burfening. Please go ahead.

Jody Burfening

Thank you, Patricia, and good morning, everyone. This is Jody Burfening of Lippert/Heilshorn & Associates. Thank you for joining us for the Ultralife Corporation's earnings conference call for the fourth quarter of fiscal 2008.

The earnings press release was issued earlier this morning and if anyone has not yet received a copy, I invite you to visit the Ultralife website at www.ultralifecorp.com where you will find the release under Investor News in the Investor Relations section.

In a minute, I'll turn the call over to John Kavazanjian, Ultralife's President and CEO, who along with Bob Fishback, Ultralife's Chief Financial Officer, will provide their formal remarks. Management will then take questions until 11 o'clock Eastern Time.

Before turning the call over to John, I'd like to remind everyone that some statements made during this conference call contain forward-looking statements based on current expectations. Actual results could differ materially from those projected as a result of various risks and uncertainties. These include worsening global economic conditions, increased competitive environment, pricing pressures, disruptions related to restructuring delays.

The company cautions investors not to place undue reliance on forward-looking statements, which reflect the company's analysis only as of today's date. The company undertakes no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances. A more detailed description of such uncertainties is contained in the company's filings with the Securities and Exchange Commission such as the company's Annual Report on Form 10-K for the period ending December 31, 2007.

In addition, on today's call, management will refer to certain non-GAAP financial measures that management considers to be useful metrics that differ from GAAP. These non-GAAP measures should be considered as supplemental to corresponding GAAP figures.

With that, I would now like to turn the call over to John. Good morning, John.

John D. Kavazanjian

Thank you, Jody. Good morning and welcome to the Ultralife Corporation conference call for the fourth quarter of 2008.

Joining me today are Bob Fishback, our Chief Financial Officer; Julius Cirin, our Vice President of Corporate Marketing and Technology and Bill Schmitz, our Chief Operating Officer.

Today we reported revenue of $49.2 million for the fourth quarter of 2008. These results are in line with our preannouncement of two weeks ago. Operating profit was a loss of $300,000 and adjusted EBITDA of positive $2.7 million. Revenue of $20 million for Non-Rechargeable Products was fueled by robust demand in most sectors. The only weakness was in automotive telematics where shipments to customers ceased in December due to extended holiday plant shutdowns.

Gross margin was up to 18% in the Non-Rechargeable segment, but was still impacted by the flow through of increased material costs and the product transition at our China operation. We expect to continue growth in this segment and continued improvement in gross margin in the first half of 2009.

Rechargeable Products revenue was an all-time high of $15.4 million. Revenue was fueled by strong international demand, increased demand from existing programs. Margins were 20% as we were still faced with high costs, particularly for rechargeable cells. We also made a strategic decision to make a lower margin sale of our smart chargers to an international military customer. By changing over this customer's infrastructure for battery charging will benefit from future sales of our product with attractive margins. The customer will realize a lower total cost of ownership.

Material costs have started to decline and price adjustments we have made will start to improve margins in this segment in the first half of 2009.

In our Communications Systems business, revenue came in at $9.4 million versus an average of about $40 million per quarter in this segment during the first three quarters of the year. Revenue in the fourth quarter was lower because we had completed virtually all shipments against our large advanced communication systems orders that we received the second half of 2007.

Since the middle of last year, we have been prepared to ship an order for spare parts and spare systems. These systems are needed and funded and the order was to have been placed in the fourth quarter. Late in the quarter, a decision was made by the Department of Defense to include this order as part of a new contract vehicle, and that change caused the delay. It should be resolved by the end of the first quarter.

As we participate more frequently in major systems programs, we may see fluctuations in our quarterly revenue from time to time, caused by either contracting delays or expedited shipments and orders. Asides from the very low contribution of advanced systems to fourth quarter revenue, the rest of our Communications Systems business was stronger than ever and produced a gross margin of 27%.

Design and Installation Services accounted for $4.4 million in revenue. Gross margins were at 13% as we began the integration of our recently acquired US Energy Systems Incorporated of Riverside, California with our existing Stationary Power Services business.

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