Ultralife Corp (ULBI) 2020 Q4 法說會逐字稿

Good day, and welcome to the Ultralife Corporation Fourth Quarter 2020 Earnings Release Conference Call. At this time, for opening remarks and introductions, I'd like to turn the call over to Ms. Jody Burfening. Please go ahead.

Thank you, Sergei, and good morning, everyone. And thank you for joining us this morning for Ultralife Corporation's conference call for the fourth quarter of fiscal 2020. With us on today's call are Mike Popielec, Ultralife's President and CEO; and Phil Fain, Ultralife's Chief Financial Officer. The earnings press release was issued earlier this morning and if anyone has not yet received a copy, I invite you to visit the company's website, www.ultralifecorp.com where you'll find the release in the Investor Relations section.

Before turning the call over to management, I would like to remind everyone that some statements made during this conference call will 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 potential reductions in revenues from key customers, uncertain global economic conditions and acceptance of new products on a global basis. 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.

Further information on these and other factors that could affect Ultralife's financial results is included in the company's filings with the Securities and Exchange Commission, including the latest annual report on Form 10-K and the latest quarterly report on Form 10-Q. In addition, on today's call, management will refer to certain non-GAAP financial measures, which it considers to be useful metrics and differ from GAAP. These non-GAAP measures should be considered supplemental to corresponding GAAP figures. With that, I would now like to turn the call over to Mike. Good morning, Mike.

Good morning, Jody, and thank you, everyone, for joining the call. Today, I'll start by making some brief overall comments about our Q4 and total year 2020 operating performance, after which I'll turn the call over to Phil, who will take you through the detailed financial results. After Phil is finished, I'll provide an update on the progress against our 2020 revenue initiatives and the focus areas for 2021 before opening it up for questions.

For the fourth quarter of 2020, our Battery & Energy Products core business posted its third consecutive quarter of double-digit organic revenue growth year-over-year. Total B&E fourth quarter Medical sales and B&E Government & Defense sales were up strongly despite the ongoing operational impact of the pandemic on supply chain, logistics and customer availability. This solid core B&E performance fully offset continued oil and gas market sluggishness and led to a total Q4 B&E revenue increase year-over-year.

Communications Systems revenue was down year-over-year, again, primarily due to the prior year vehicle adapter and mounted power amplifier sales under the U.S. Army's network modernization initiatives. As a result, total company [revenue] (added by the company after the call) was below the previous year.

Sequentially, quarter-over-quarter revenues increased, and when combined with disciplined cost control, led to an increase in operating income by over 70%.

For the total year 2020, with unprecedented operational and market challenges due to COVID-19, we were humbled to achieve modest year-over-year revenue growth and company-wide profitability. Also, focused working capital management throughout the year, improved our year-end debt and cash positions.

In a few minutes, I'll give you further updates on our revenue initiatives. But first, I'd like to ask Ultralife's CFO, Phil Fain, to take you through additional details of the fourth quarter 2020 financial performance. Phil?

Thank you, Mike, and good morning, everyone. Earlier this morning, we released our fourth quarter results for the quarter ended December 31, 2020. We also filed our Form 10-K with the SEC and have updated our investor presentation which you can find in the Investor Relations section of our website. I would like to thank all those that helped make this happen.

For the fourth quarter, consolidated revenues totaled $29 million, representing a $2 million or 6.6% decrease from the $31 million reported for the fourth quarter of 2019. The year-over-year variance reflects a significant increase in battery sales to our Medical and Government Defense customers, which was offset by lower oil and gas market and Communications System sales. We estimate that approximately $2.6 million of the year-over-year variance is due to demand impacts associated with COVID-19....with a substantial increase in sales of medical batteries, especially those used in ventilators, respirators and infusion pumps, more than offset by weakness in the oil and gas and international industrial markets.

Revenues from our Battery & Energy Products segment were $25.3 million, an increase of 0.7% from last year, attributable to a 94.3% increase in medical battery sales and an 18.8% increase in government defense sales, offset by a 67.4% decline in oil and gas market sales. Sales for our core battery business were at the highest quarterly level in 10 years, with Medical sales for the fourth quarter comprising 38% of total sales for this segment. The sales split between Commercial and Government Defense was 68/32 compared to 67/33 for the 2019 fourth quarter, and the domestic to international split was 54/46 compared to 49/51 last year.

Revenues from our Communications Systems segment were $3.7 million, a decrease of 37.6% from last year. The decrease reflects 2019 shipments of vehicle amplifier adapter systems to support the U.S. Army's network modernization initiatives under delivery orders announced in October 2018. These orders were completed in the second quarter of 2020.

On a consolidated basis, Commercial sales and Government Defense sales decreased 8% and 4.9% respectively from the 2019 period. The Commercial to Government Defense sales split was 54/46 versus 55/45 for the year-earlier quarter.

Our consolidated gross profit was $7.4 million compared to $9.4 million for the 2019 period. As a percentage of total revenues, consolidated gross margin was 25.4% versus 30.2% for last year's fourth quarter.

Gross profit for our Battery & Energy Products business decreased to $6.4 million from $6.6 million. Gross margin was 25.2%, a decrease of 120 basis points from 26.4% reported last year, reflecting the product mix impact of lower oil and gas market sales and incremental costs in 2020 associated with the transition of a multitude of new products to higher volume production.

For our Communications Systems segment, gross profit was $1 million compared to $2.7 million for the year earlier period. Gross margin of 26.3% compared to 46.1% for last year, primarily due to the high-volume production and sales mix impact of vehicle amplifier adapter systems for the U.S. Army in 2019.

Operating expenses decreased $0.7 million or 10.9% from $6.9 million last year to $6.1 million. This decrease exceeded the overall percentage reduction in revenues and attributable to strict control over all discretionary spending and headcount reductions earlier in the year. As a percentage of revenues, operating expenses were 21.2%, down 100 basis points from 22.2% for last year's fourth quarter.

Operating income for the fourth quarter of 2020 was $1.2 million compared to $2.5 million for the 2019 quarter, reflecting the net financial impact of COVID-19 and lower year-over-year sales for Communications Systems. And operating margin was 4.2% for the 2020 period versus 8% last year, driven by the lower gross margins.

During the fourth quarter, the company was awarded approximately $1.6 million, net of fees, upon U.S. District Court approval and order authorizing the distribution of funds to claimants in a Lithium-Ion Battery Anti-Trust Settlement. The funds have been released by the court, and we expect receipt in the very near future. The recognition of our settlement award, which pertains to purchases made in prior periods, is reported with other income and expense in our statement of earnings.

Our tax provision for the fourth quarter was $0.7 million compared to $0.5 million for the 2019 quarter, computed at statutory rates...while excluding the benefits of our net operating losses and tax credit carryforwards for GAAP reporting purposes. Accordingly, our reported tax provision for the fourth quarter is based on an effective rate of 24.4%, while utilization of our deferred tax assets will drive the tax provision down to only $0.1 million or 4.2% when we pay our taxes. We expect that the net operating losses and tax credits included in our deferred tax assets will offset all U.S. taxes for the foreseeable future.

Using the 24.4% statutory tax rate, net income was $2.1 million or $0.13 per share on a diluted basis for the 2020 fourth quarter. This compares to net income of $1.6 million or $0.10 per share on a diluted basis for the 2019 quarter.

We utilize adjusted EPS to reflect actual taxes paid or to be paid and define adjusted EPS as EPS excluding the provision for non-cash U.S. taxes expected to be fully offset by our net operating loss carryforwards and other tax credits. As noted in the supplementary table in our earnings release, adjusted EPS on a diluted basis was $0.17 per share for the 2020 fourth quarter compared to $0.13 for the 2019 fourth quarter. We estimate that the adverse impact of COVID-19 to our adjusted EPS for the fourth quarter was $0.07 per share.

Throughout these challenging times, we continue careful management of our liquidity. We ended 2020 with a significantly strengthened balance sheet and enhanced liquidity, with cash on hand increasing 44% from $7.4 million last year to $10.7 million, and debt decreasing 91% from $17.3 million last year to $1.5 million. We ended 2020 with working capital of $45.8 million and a current ratio of 3.4.

As a result, we remain well positioned to fund organic growth initiatives, including new product development and strategic capital expenditures, while expediting our organic growth through accretive M&A.

Going forward, with our resilient business model, ample liquidity, diversified end markets and growth initiatives, we remain steadfastly focused on releasing the full leverage potential of our business model.

I will now turn it back to Mike.

Thank you, Phil. To date, the combination of our business model, growth strategy and execution has enabled us to deliver respectable revenue growth and to sustain profitability and operational cash flow in even the most difficult of times. Regarding our growth strategy, continuing in 2021 we are focused on increasing our revenue growth opportunities through diversification, expansion of market and sales reach, new product development and strategic Cap-Ex and potential acquisitions.

For the Battery & Energy products business, diversification and market and sales reach expansion into the global commercial markets and international government defense markets has lessened our historical concentration in the U.S. Government Defense market.

In Q4 2020, our U.K. operations continued to drive this global diversification strategy, with sales increasing at a strong double-digit rate and at record levels. We continue to expand our participation in major medical device OEM companies with new and existing products, and our U.K. technical resources have also been instrumental in the global development of newly designed forthcoming medical cart battery systems. For 2021, the U.K. team has a solid order book with its current customer base, and they will also serve as a key European launch point for our new 3-volt range of products for already engaged potential customers.

Looking deeper into our Commercial revenue and Global Medical revenues, the pandemic continues to boost demand from Global Medical customers. And in Q4 2020, Medical revenue was up 94% year-over-year. Our Medical sales in Q4 2020 represent 38% of total Battery & Energy product revenues, further validating our diversification strategy. We saw strong demand from existing customers with applications for ventilators, respirators, infusion pumps, digital x-ray and surgical robots. We also received delivery orders for existing Medical customer blanket and/or multiyear agreements which totaled $4.18 million.

Looking at non-medical Commercial revenue, in Q4 2020 our SWE team provided approximately 9% of total Battery & Energy product sales. Shipments were to customers in the core oil and gas space as well as for subsea electrification battery projects. Despite the very challenging COVID and economic circumstances in the core oil and gas market, SWE was EPS accretive for the year, capitalizing on Medical and SeaSafe opportunities. Near term, we're cautious about the when and how much the return of oil and gas demand is as the COVID-19 shutdowns loosen up and consumer travel starts to increase. In the meantime, we continue to make investments in the manufacturing capability and certifications for SWE to do more of our medical business. We are also pursuing new business opportunities with our SeaSafe subsea battery modules, as large autonomous underwater vehicles, subsea oil and gas infrastructure, and oceanography industries begin to see the ease of use, safety and depth advantage of our pressure tolerant, rechargeable battery modules. Looking back when we did this bolt-on acquisition in 2019, we were excited not only about the diversification potential with this core business, but also about obtaining a highly valuable technical team of battery pack and charger system engineers and technicians that we could add to our new product development-based revenue growth initiatives in our commercial end markets. We are delighted that we have this additional engineering and technical bandwidth and have recently applied it to not only new Medical projects, but also to some exciting new Government Defense products. We also look forward to their involvement as we roll out our new ER thionyl chloride cells, particularly for smart metering, asset tracking and other industrial applications.

For B&E's U.S. Government Defense business, revenue was up 39% year-over-year and represented approximately 34% of total B&E product sales. Included were radio battery shipments to OEM primes as well as final shipments under a $4.8 million 5390 DLA spot buy award. We also continued to make progress against testing requirements for over $85 million in untapped DoD DLA IDIQs awarded in 2017, including the $21 million next-generation 5390 and the $49 million 5790 primary batteries. Whereas the amounts and timing of deliveries under IDIQ contracts are at the discretion of DLA, we are hopeful testing will be completed and some initial revenue will start later in 2021. In the meantime, we continue to strengthen our relationships with the OEM primes and have new radio battery products incorporating leading-edge technology that will help support our customers' needs on multiple platforms for several years to come.

Regarding Battery & Energy Products new product development, in Q4 2020 12% of revenues were from products introduced less than or equal to 3 years ago. During the fourth quarter of 2020, continued progress was made on several projects, including but not limited to, OEM public safety radio batteries, a next-generation medical cart battery, a new military conformal battery, and next-gen ruggedized modular large-format energy storage batteries.

Looking forward, we will further expand our new product development work in the medical, automated guided vehicle and robotics markets with a variety of new products that we are targeting to bring to market this year. We use investment in new product development and multi-generational product planning to not only pursue new revenue streams identified in our end markets, but to also collaborate, remain close with and provide value to our key customers.

In addition to the investment in new product development and multi-generational product planning, we are also continuing to deploy strategic Cap-Ex investment in our facilities to strengthen our competitive differentiation. Our goal is to produce the highest value proposition, best quality and safest products in close collaboration with our end market and OEM customers at whichever one or more of our global locations best serve their supply chain.

In our Newark, New York facility, implementation of automated manufacturing is in the final stages for our new premium lithium manganese dioxide 3-volt cell, serving the IoT wireless devices market as well as next-generation 3-volt smoke alarms, asset tracking, metering, medical and portable lighting devices. While we are ramping up production to fulfill initial customer orders, several other potential large customers are continuing evaluation testing. This new product provides customers with world-class product performance, safety and a competitive price value proposition as well as the supply chain proximity of being made in the United States. During the coming year, we are also looking to introduce a CFX blended battery chemistry in a similar form factor to the 3-volt cell which will offer significantly longer runtime and enhance system reliability to address growing applications in the IoT and remote sensor markets.

In China, we continue to advance and invest in our thionyl chloride ER cell upgrade project involving extensive process improvements, which will help us expand our total available market with newly identified commercial and industrial applications. Samples of the newly formulated and designed ER high-rate products continued to ship throughout Q4, with low rate ER cells ready and available for sampling in Q1 2021. This next-generation of lithium thionyl chloride cells is targeted at some of the most demanding applications where a decade-plus year cell life and high energy density is key. Only a limited number of global players currently make these products, which can lead to longer lead times, creating an opportunity as customers look for alternative and backup suppliers. We also plan to use our China operations for various battery pack assemblies at the request of some of our global customers. Lastly, there continues to be broad customer interest in our China produced thin cell battery in multiple medical and tracking applications that require discrete thin power for body worn electronics and sensors, with one particularly attractive segment being patient vital signs monitoring.

At Communications Systems, in Q4 2020, new product development revenue for products less than or equal to 3 years old represented approximately 22% of Communications Systems revenues. The challenging impact of COVID-19 continued to be felt with global military sales, including delays due to U.S. Army vehicle production line limitations. Overall sales were lower, but engagement with primary OEM customers were sustained at a high rate, using virtual tools to support engagement and collaboration, allowing continued new product development, and planning for future program awards.

One bright spot in Q4 was a purchase award from a channel partner for an International Ministry of Defense for our 20-watt amplifiers and handheld vehicle adapters, valued at $3.1 million and scheduled to ship throughout the first half of 2021. Looking forward, if additional vehicles are outfitted as expected, follow on orders are possible.

Regarding the U.S. Army's handheld ManTech Small Form Fit and Leader Radio programs, operational tests and evaluations are now underway with the U.S. Army HMS Program office. It is expected that the U.S. Army will release program funds to move forward with higher rates production orders upon completion of these OTEs with follow-on contract opportunities anticipated in 2021. Communications Systems remains well positioned for future business within a domestic military radio market with proven products supporting both single and two-channel, hand-held and manpack radios, ancillaries, and integrated solutions.

As an update to the system integration of cutting-edge server technology mentioned previously, fielding, assessment and operational testing of the initial server cases has been completed and expectations for initial system orders in support of program upgrades are expected in the first half of 2021. The initial scope will be multi-case configurations, providing integration of server, UPS and ancillary items to support operations. The same case configuration for another program will begin test trials starting in February with procurement anticipated later in 2021.

Momentum continues for other commercial applications which leverage our experience and past performance for Government & Defense system integration into new global markets. We remain very optimistic about this emerging growth area and further expansion of this key OEM relationship as demands materialize in 2021.

In closing, for the fourth quarter of 2020, we were pleased that our strong performance in our Battery & Energy Products core businesses enabled us to achieve the sought-after total company total year revenue growth, however slight. Disciplined execution on the part of all of our business units focused on serving our customers in a very difficult COVID and economic environment, once again sustained profitability, positive cash flow and a solid balance sheet. We'd like to thank each of our dedicated employees for their individual contributions to this outcome.

As we embark on 2021, while COVID and energy market uncertainties remain, we nevertheless are focused on starting to deliver initial revenue from the transformational projects we have been working on for the past few years. When we speak of transformational projects, we are referring to new meaningful, sustainable annual revenue streams, in attractive growth markets, from new, competitively differentiated products.

At Communications Systems, these include but are not limited to, potential Leader Radio follow-on awards, new OEM manpack radio ancillaries, integrated computing solutions, and next-generation 20-watt amplifiers.

At B&E, our transformational project list includes, but is not limited to, the new 3-volt product line, the new ER product line, the smart U1 battery product line, the 5790 CFx blend primary battery, and several other new public safety thin cell, medical, and subsea electrification battery packs.

The industries we serve, military/defense, energy and medical, provide us durability and resiliency to ride out the current economic headwinds. We expect that the actions underway will improve our revenue growth rate and revenue and EPS consistency. As a total company, our strong balance sheet, solid cash flow from operations, and disciplined execution of our business model by our management team, afford us the opportunity to simultaneously pursue organic revenue growth through our transformational projects, invest in new product development and strategic Cap-Ex for competitive advantage, and seek out impactful acquisitions. Our goal in 2021 is to deliver our next year of profitable growth.

Operator, this concludes my prepared remarks, and we'd be happy to open up the call for questions.

(Operator Instructions) Your first question comes from Gary Siperstein from Eliot Rose Wealth Management.

Congratulations on the 70% improvement in operating income on a sequential basis. My first question is, we're still struggling with the gross margin, Mike. I know the goal is to get it back to 30%. Is the entire 5% differential due to the fact that it's the deleveraging from Communications Systems versus the period of the prior year when you had those contract shipments and the decline in oil and gas from SWE?

Yes. I'd say there's 3 pieces, as we mentioned in the prepared remarks. I mean you're correct, the deleveraging of the Comm Systems volume, a little bit of the same thing in the oil and gas space, and then really, the transition of some products from the new product development realm into the high-speed production. There's been some excess scrap and some challenges along the way there. Nothing insurmountable, and we're making some great improvements to get past that, but I would say it's those 3 things collectively that add up to that slight drop in gross margin.

Okay. And is there any room on the expense side to address that? Or is it all a function of volume? And maybe when the volume comes back in the second half of this year that will take care of itself?

Yes. We're trying to be extremely frugal in operating expenses. At the same time, we're trying to get some of these transformational projects into realizing revenues, so a little trade-off. We don't want to cut back too much on things that's going to drive us towards future revenue growth. But we're aware of the fact that gross margins are a little bit lower. So we have been tighter on operating expenses, as indicated in Phil's remarks.

Okay. And I might have missed this, but the opportunity in Communications with a commercial customer that you alluded to last quarter, I might have missed it. Did you make any comments on that?

It just continues through testing. I mean we have a number of these new integrated solutions that we have end market interest in our core Government Defense space and some of the same other industries we're working in, like oil and gas and factory and automation. And we're just really trying to pursue those opportunities as well as to maybe some opportunities in the 5G space. We don't want to get too much into it because it's still emerging, but the potential is quite large if it should come to fruition. So we're trying to be transparent in talking about what we're working on, but not oversell until we actually have something tangible we can talk about.

Understood. Is it a brand-new product? Or is it just tweaking the amplifiers we already sell to military?

The thing that's really interesting, if you look at Comm Systems over the last decade, when we started out, at least within my tenure, they had a really strong position in 20-watt amplifiers. They had some vehicle amplifiers. And then we really migrated their offering to be an integrated solution. And so it ended up having amplifiers plus power supplies for deployment in vehicles and other types of opportunities. And so we're really leveraging this experience in integrating some of these pretty sophisticated devices, particularly for the harsh environments of military and oil and gas in all the kinds of places. And this really plays off of that with some other key electronics, those electronics being servers and uninterruptible power supplies and the like. So it's a natural migration of the integrated solutions thrust that Comm Systems has done a great job of doing over the last couple of years into a commercial space. So we're really excited about that.

Okay. Thank you for that color. In terms of SWE, so I know it's going to be a little bit of a lagging indicator, but price of oil has gone from like $45 back to $54. And there's speculation that with vaccines, there could be economic recovery in the back half, travel could pick up where it could get back to $60. I'm wondering if you guys think we've bottomed on SWE, and that doesn't mean it's going to increase yet until we're into more of an economic recovery, and if indeed, oil does get back to $60. But do you think we've seen the worst in terms of bookings there?

I tend to look at it this way. I tend to look at how did our team there perform under an excruciating set of circumstances? I mean I can't think of a more robust stress test than what that business went through last year. And fact of the matter is they were still EPS accretive for the year. And so they performed well in the core oil and gas business that they did have, they did some things in medical. Our SeaSafe business is continuing to emerge.

And so it's hard to make projections as to what's going to happen in the oil industry, and there's a lot of rhetoric swirling around that. But we're just trying to make sure that the highly valuable technical and great team that we bought when we bought that company are deployed as efficiently as possible. And if the oil and gas business should come back strong, we don't know when that would be or not, but we certainly expect something will happen. But in the meantime, we're trying to really control our own destiny by getting them involved in other kinds of things. So I'm very pleased with how they performed last year, and heck, I'm not expecting it to be another difficult year like it was last year this coming year.

Okay. Thank you for that color. And again, I'm not trying to be a Monday morning quarterback. You said it was accretive, and you're expanding them into other areas, and then if there's any rebound in oil and gas, that will be wonderful. But it is an acquisition that was in a cyclical business tied to a commodity. Is it safe to say your next acquisition will be more on the lines of Accutronics with medical or some industry that's secular, got secular growth as opposed to cyclical where the wind is at our back instead of potentially in our face?

That's hard to say. I mean at any given time we're farming through multiple different opportunities for M&A. Many times, you start a relationship in one set of economic circumstances. And then you end up having an opportunity to maybe do an acquisition in a different set of economic circumstances. We try and make a real concerted effort to understand what it is we think that the acquisition brings to us from a strategic level, from a financial perspective. And sometimes you have to do the acquisition when it may not be in the most advantageous economic cycle. And make a long way of saying really we're just trying to evaluate individual acquisitions on their individual merits. And I wouldn't make any blanket statements at this point about whether or not it would be a cyclical or non-cyclical type of business.

Okay. It just seems a lot easier to buy something where there's a secular growth like medical...people getting older, that's not going to change. What other secular areas could we play in? Is there anything with taking advantage of the work from home environment and taking advantage with 5G? I think you mentioned some 5G in the commentary. Fulfillment, knowing that people are shipping stuff to home due to COVID and the whole Amazon accelerated digital thing. What other areas can we play in besides medical yet more secular?

I think you're right, Gary. I mean we are looking at all those spaces that you talked about. One of the areas that we referenced a little bit in our prepared remarks was some of the automated guided vehicles in warehousing and distribution. Of course, anything medical is very attractive to us. I mean I think we're trying to look at acquisitions that would contribute to our reputation of being someone who performs really strongly in a mission-critical type application. So I think everything that you mentioned is on the table. I think with more and more things happening with EV and charging stations and all the different opportunities and things that are evolving there, we're looking at what would make sense for us to participate there. And I think everything is on the table at this point. That's really all I want to say about it.

Yes, something in EV would certainly be exciting. Mike, you talked about 3-volt, I guess that plays into Internet of Things. We've made a lot of investment the last couple of years in 3-volt. Do you think that will start contributing as early as the third quarter, or is that a fourth quarter contribution?

I would hope sooner than the fourth quarter for sure.

Super. Okay. And the same with the IDIQs, you said there's $85 million remaining. You called out 2 of the bigger awards and talked about testing completing and the possibility of orders. Is that also a possibility for Q3? Or is that Q4?

Probably later. I mean it really has to do with the testing and then the evaluation by the customer and then next step action items. And that cycle, back and forth cycle has slowed down as a result of COVID and people working out of their homes and those kinds of things.

Right. Is that also true for Leader and manpack? I saw L3Harris, just a few weeks ago, get another I think it was $57 million or $59 million LRIP. And within the news release, they reiterated it was a $3.9 billion award for 100,000 radios. So I think that's the third or fourth low-rate initial production order. So I'm just curious, I don't know this field, how many low rate orders do you get before you go into a high rate order? I mean is it 3, is it 5, is it 7? And also following up on that, if they get a -- since there's 2 manufacturers for that next-gen radio and L3Harris got that $57 million, does that mean Thales also got a $57 million order? Is apples and apples, or is it different times for the different companies?

Well, to answer your first question, what we do know for the overall Leader program is that they're going through the operational and testing evaluations right now. And I don't have specific statistical experience as to how many low rates until you get into a high-rate production type of award. But what I do know is that these OT&Es that are taking place right now are a key milestone to get into that high rate production area. So we're cautiously optimistic to get through the OT&E phase. And depending if people need amplifiers or VAAs or if people need radio batteries, we're ready, willing and able for any hybrid awards that should happen to come our way.

Okay. So there is a possibility that whether it's low rate or high rate, that there could be some back half of the year business, Q3, Q4 for that? I would think since you completed shipment to Thales in Q2 of last year on their amplifiers that they -- maybe they're getting close to working down their inventory.

I mean that's a good point of view on that. I don't have any way to confirm it at this point.

Okay. So I just want to talk from like a mile up looking down. So you just did a $0.07 or $0.08 quarter during the worst of times for oil and gas and without Leader and the IDIQ is really helping in terms of future business. So it seems to me, if by the back half of this year comparisons get easier year-over-year on the EPS front, and if oil and gas doesn't get worse or God forbid actually starts getting better, and if Leader kicks in, manpack kicks in, the IDIQs kick in, maybe get your first revenues out of this Communications -- commercial Communications effort, the back half could look pretty interesting. And after 4 years of having earnings roughly between, I guess $0.37 and $0.41, maybe we could start to break out. So if we're at $0.07 or $0.08 now with all that wind in our face and no contributions for all these seeds you planted, it could get pretty interesting.

And then when I look at it, if you can get back to $0.10, $0.12 quarters, that implies growth again on an EPS basis, and obviously, the revenue will grow on top of that. Once the Street -- the stock has been in the penalty box because earnings have been flat and we're trading at a terrible discount to book. But once the Street can anticipate positive earnings comparisons and earnings starting to grow again, it seems to me once you get back to that $0.40, $0.50 level on an annual basis, the stock could easily go back to $10. And then you know how the math works. If you can get to a $0.50 plus, maybe the stock is $12 or $15, $0.60 plus an annual earnings $0.15 quarters, the stock could make a run to $20. So -- and we know we're sort of under-owned, and we're off the radar, even though the volume on the stock has been robust, there's no analyst coverage.

So I guess what I'm saying is, and usually, the stock market starts to anticipate things 6 months in advance. So we shouldn't be too far, everything else being equal, and assuming the third quarter is going to be good, and we can approach the fact that we're going to have an up year in earnings on an annual basis and start having nice year-over-year comparisons in Q3, that the stock shouldn't be too far from maybe moving to the upside in anticipation of all this. And the fact that we're starting here at $6 at a 20%, 25% discount to book, I think with this latest quarter, book is over $7.25 now with a clean balance sheet.

So in light of all that, Mike, I guess what I'm saying is, does it make sense come this spring/summer ahead of the Q3 print that maybe we start to put something in place for a little bit of a different IR to really get the street interested in us and plant the seeds for -- instead of waiting until the numbers hit and then doing it after the fact, sort of getting out there maybe this summer, early fall before the 3-quarter print to have people ready to maybe take a look at our stock, buy our stock in anticipation of better things.

I think you bring up out very good points, Gary, and I have to be honest with you, I can't wait to get out. We were seeing over 45 customers a year face-to-face. I mean there's no greater oxygen than to be face-to-face with the customer where we spend a ton of time, and then we applied that to as well a lot of face to face with investors. So as soon as we get the all clear and things get back to whatever new normal is, I'll probably be gone for about a month, just going out and sitting in customer offices and investor offices and trying to pick their brain to what we can do to serve both constituents better. But I'd also pass it over to Phil. Phil, if you have any comments you'd like to add.

Sure. Gary, I'd certainly agree with everything that you had mentioned. And I'll add a few more reference points that are in our 10-K that was issued this morning. When we go back and look at what a realistic estimate of -- on 2020 of the net financial impact of COVID, I would say sales were adversely impacted by $7 million for the year, operating profit $2.6 million. The impact on GAAP EPS was $0.12. The impact on adjusted EPS was $0.15. So hopefully, God willing, we'll have that at our back in the not-too-distant future.

Another point that I do want to reference that's also deep in the 10-K, and I'll save you some digging, is when you look at our -- the backlog exiting Q4 of 2020, which was just shy of $40 million and you compare that to the backlog of exiting the prior year, which was approximately $42 million, and you look at $40 million versus $42 million and then you just take a step deeper, we talked about the delivery of $4.8 million of the DLA 5390 batteries. We talked about concluding the Leader Radio shipments, all which were in the backlog exiting last year.

So I think our resilient business model, the ample liquidity, the diverse end markets and the growth opportunities that we have, especially those, the transformational projects covered by Mike, once those hit, I think we're in the position that we want to be in to recognize the leverage and scalability of our business model.

That's very helpful, Phil. So let me just drill down on that a little more. So if you take out from the $42 million, you mentioned the $4.8 million. And then the Communications, the Thales order, so apples and apples, was last year's backlog actually like $30 million or $32 million?

I would say, we always try to do it on an apples-to-apples basis. And it's more cherry picking than anything, but those are the 2 biggest obvious ones that fall out because you're always looking apples and apples, and you're not quite able to get there. So instead of looking backwards at the comparison, which we do, our goal is just to look forward and to increase that and ensure that we're in a position to ship it all in 2021. But I think overall, what you mentioned is correct.

Okay. So -- yes, you're not going to have any shipments in the first half of this year from that large contract that completed in Q2 last year and the other IDIQ on top of it. So yes, that's pretty significant then. So maybe a 25%, 30% increase in backlog, apples and apples, with the possibility of getting orders to ship in the back half of this year on any new awards out of Thales or L3Harris as they work down their inventories and start shipping these new LRIPS. One last question.

Gary, I would have you refer to the 10-K where all this is explained in detail. It's all publicly stated.

Okay, super. And I don't know if this is a question or more of a suggestion or an observation. But if all this comes to fruition and we get post COVID so we don't have the headwinds on SWE and we get new business as Mike and I just went through in the Q&A for the back half of the year, if the earnings come through and the stock is back to $8, $9, $10, $12, whatever it goes to, on improving earnings and the expectation, positive comparisons and the expectation that we could grow this for 2 to 3 years in a row after being flat on an EPS basis for 3 or 4 years.

Would you consider possibly hiring an investment banker? Let's say, the stock is $10 and you haven't made an acquisition yet, and then if you make a nice secular acquisition, something with a little sex appeal, maybe medical or EV or whatever that's more secular than cyclical, at the same time as the acquisition maybe you do a secondary and you float 1.5 million, 2 million shares with the stock at $10.

So the balance sheet gets less of a hit from the acquisition and by bringing onboard an investment banker, that could lead to sponsorship or analyst coverage. And you guys did buy in 2 million, 2.5 million shares, around $4, $4.5 on the buyback program. So if you had an opportunity to issue that with a real sweet acquisition that moved the needle, and it was accretive by doing it at $8, $9, $10, $11, whatever the stock is, it could be a win-win. Is that something that you'd consider at that time?

Gary, I'll just say that we have surrounded ourselves with some outstanding resources, and we'll keep it at that.

Okay. All right, guys. Again, congratulations on the 70% sequential improvement in operating income and fingers crossed for the new year.

(Operator Instructions) As there are no further questions in the queue, that will conclude today's Q&A session. And I would like to hand over, back over to Mike for any additional closing remarks. Over to you, Mike.

Great. Well, thank you once again for joining us for our fourth quarter 2020 earnings call. We look forward to sharing with you our quarterly progress in each quarter's conference call in the future. As Phil had mentioned, we put a number of documents out today and there's a new investor presentation on our website, so please take a look. Everybody, have a great and safe day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.