Q1 2025 Ultralife Corp Earnings Call

Operator: Good day and thank you for standing by.

Good day and thank you for standing by welcome to the Ultra Life Corporation first quarter 2025 results. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question answer session.

Operator: Welcome to the Ultralife Corporation first quarter 2025 results. At this time, all participants are listen only mode. After the speaker's presentation, there will be a question and answer session.

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Speaker Change: Please be advised that today's conference is being recorded I would like to hand, the conference over to your first speaker today, Alex We all talk about Alliance advisors IR. Please go ahead.

Alex Fialta: I'd like to hand the conference over to your first speaker today, Alex Fialta of Alliance Advisors IR. Please go ahead. Thank you, operator. And good morning, everyone.

Alex We: Thank you operator, and good morning, everyone. Thank you for joining us for Ultra Lights Corporation's earnings conference call for the first quarter of fiscal 2025.

Alex Fialta: Thank you for joining us for Ultralife Corporation's earnings conference call for the first quarter of fiscal 2025. With us on today's call are Mr. Mike Manna, Ultralife's President and CEO, and Mr. 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 at ultralife.com. where you'll find the release under the Investor News and the Investor Relations section.

Mike Nano: With us on today's call are Mr. Mike Nano Ultra lights, President and CEO and Mr. Phil Fain Ultra lights, Chief Financial Officer.

Mike Nano: The earnings press release was issued earlier this morning, and if anyone has not yet received a copy I invite you to visit the Companys website at ultra life Dotcom.

Mike Nano: Where you'll find the release under the Investor News in the Investor Relations section.

Alex Fialta: Before turning the call over to management, I would 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. The potential risks and uncertainties that could cause actual results to differ materially include uncertain global economic conditions, reductions in revenues from key customers, delays or reductions in U.S. and foreign military spending, acceptance of our new products on a global basis, and disruptions or delays in the supply of raw materials and components due to business conditions, global conflicts, weather, or other factors not under our control.

Mike Nano: Before turning the call over to management I would like to remind everyone that some statements made during this conference call contains forward looking statements based on current expectations actual results could differ materially from those projected as a result of various risks and uncertainties.

Mike Nano: Potential risks and uncertainties that could cause actual results to differ materially include uncertain global economic conditions reductions in revenues from key customers delays or reductions in U S and foreign military spending.

Mike Nano: <unk> of our new products on a global basis, and disruptions or delays in the supply of raw materials and components due to business conditions global conflicts weather or other factors not under our control.

Alex Fialta: 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.

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.

Mike Nano: The company undertakes no obligation to publicly update forward looking statements to reflect subsequent events or circumstances.

Alex Fialta: Further information on these factors and other factors that could affect Ultralife's financial results is included in the company's filings with the SEC included in the latest quarterly report on Form 10-Q. In addition, on today's call, management will refer to certain non-GAAP financial measures that management considers to be useful and differ from GAAP. These non-GAAP measures could be considered supplemental to corresponding GAAP figures.

Mike Nano: Further information on these factors and other factors that could affect ultra life's financial results is included in the company's filings with the SEC included in the latest quarterly report on Form 10-Q.

Mike Nano: In addition on today's call management will refer to certain non-GAAP financial measures that management considers to be useful and differ from GAAP. These non-GAAP measures could be considered supplemental to corresponding GAAP figures.

Michael Manna: With that, I would now like to turn the call over to Mike Manna. Good morning, Mike. Please go ahead.

Speaker Change: With that I would now like to turn the call over to Mike Madden. Good morning, Mike. Please go ahead.

Michael Manna: Good morning, welcome to our call on Ultralife's Q1 operating results. Earlier this morning, we reported Q1 sales of $50.7 million with an operating income of $3.4 million, which resulted in 11 cents EPS on a gap basis and 13 cents on an adjusted basis. Q1 was the first full reporting quarter in which our latest acquisition, Electrochem, was fully included in our results. I am pleased to say they were a positive addition in Q1, even with some remaining one-time costs as we worked through the transition of their systems from their previous parent, which is on track to complete in Q2 of this year.

Speaker Change: Good morning, welcome to our call and Ultra life's Q1 operating results earlier. This morning, we reported Q1 sales of $50 7 million with an operating income of $3 4 million, which resulted in an 11 cents EPS on a GAAP basis and 13 on an adjusted basis Q1 was the first full reporting.

Speaker Change: Quarter in which our latest acquisition electric Cam was fully included in our results I'm pleased to say they are positive addition in Q1, even with some remaining one time costs as we work through the transition of their systems from their previous parent which is on track to complete in Q2 of this year.

Michael Manna: I want to briefly cover the major subject of tariffs and the expected impact. We have a diverse business with multiple supply chain flows, each with multiple levels of tariff and duties depending on which product it is. So we do expect some impact due to the tariff situation. We have a detailed evolving analysis of the major suspected impacts and are passing along the known full tariff cost as a surcharge. Specifically reviewing our China location produced end products, typically 10-15% ships directly to the United States, with most other sales being to other international locations. We are executing our mitigation plan, which includes reviewing sources of supply, managing inventory flow to reduce upfront expenses at the border, and examining our manufacturing location.

Speaker Change: I want to briefly cover the major subject of tariffs and the expected impact we have a diverse business with multiple supply chain flows each with multiple levels of tariff and duties, depending on which product. It is so we do expect some impact due to the tariff situation. We have a detailed evolving analysis of the major Cisco exit impact.

Speaker Change: <unk> and her passing along the known full tariff cost as a surcharge.

Speaker Change: Specifically reviewing our China location produced end products, typically 10% to 15% shipped directly to the United States with most other sales being other international locations.

Speaker Change: We are executing our mitigation plan, which includes your viewing sources of supply managing inventory, Florida reduce upfront expenses at the border and examining our manufacturing locations.

Michael Manna: Being heavily involved in medical and government markets, it is often not quickly possible to change supply source without requalification and customer involvement, which also creates competitive barriers to entry. We believe our North American-based manufacturing locations will give us long-term strategic advantages, especially in the government and defense, in the oil and gas markets, and provide future opportunities for growth.

Speaker Change: Being heavily involved in medical and government markets. It is often not quickly possible to change supply source without re qualification and customer involvement, which also creates competitive barriers to entry.

Speaker Change: We believe our North American base manufacturing locations will give us long term strategic advantages, especially in the government and defense and oil and gas markets and provide future opportunities for growth.

Michael Manna: We are committed to continue investment in NPD projects and increase marketing efforts, both of which are required to continue our targeted growth goals.

Speaker Change: We are committed to continue investment in MPD projects and increased marketing efforts both of which are required to continue our targeted growth goals.

Philip Fain: I will now turn it over to Phil to talk through the detailed numbers. Thank you, Mike. And good morning, everyone. Earlier this morning, we released our first quarter results for the quarter ended March 31st 2025. We have also updated our investor presentation in the investor relations section of our website and we'll file our Form 10-2 with the SEC on Monday. Consolidated revenues totaled $50.7 million compared to $41.9 million for the first quarter of 2024. revenues from our battery and energy product segment were 46.3 million compared to 35 million last year, excluding third party sales for electrochem, which we acquired on October 31, 2024.

Speaker Change: I will now turn it over to Phil to talk through the detailed numbers.

Phil: Thank you, Mike and good morning, everyone.

Phil: Earlier. This morning, we released our first quarter results for the quarter ended March 31 2025.

Phil: We've also updated our investor presentation in the Investor Relations section of our website.

Phil: And we will file our Form 10-Q with the SEC on Monday.

Phil: Consolidated revenues totaled $50 7 million.

Phil: Compared to $41 9 million for the first quarter of 2024.

Phil: Revenues from our battery and energy product segment were $46 3 million compared to $35 million last year.

Phil: Excluding third party sales for electric camp, which we acquired on October 31, 2024 sales for this segment increased 10, 6% year over year.

Philip Fain: Sales for the segment increased 10.6% year over year. This organic growth was driven by very strong performance in our government defense sales, which increased 53.6%, partially offset by a 12.3% decrease in medical battery sales. The sales split between commercial and government defense for a battery business was $64.36 compared to $69.31 reported for the 2024 quarter. And the domestic to international split was $78.22 compared to $58.42 for the 2024 period. representing the inclusion of electrochem in the heightened demand for our government defense products by U.S. Prime. Revenues from our communications system segment of $4.4 million declined 36.2% from the $6.9 million we reported last year, primarily attributable to large shipments in the prior year of integrated systems of amplifiers and radio vehicle mounts to a major international defense contractor.

Phil: This organic growth was driven by very strong performance in our government defense sales, which increased 53, 6%.

Phil: Partially offset by a 12, 3% decrease in medical battery sales.

Phil: The sales split between commercial and government defense for our battery business was 64 36 compared to 69 31 reported for the 2024 quarter and the domestic to international split was $78 22 compared to 50 842 for.

Phil: The 2024 hour period.

Phil: Representing the inclusion of electric him and the heightened demand for our government defense products by U S primes.

Revenues from our communications systems segment of $4 4 million declined 36, 2% from the $6 9 million, we reported last year, primarily attributable to large shipments in the prior year of integrated systems of amplifiers in radio vehicle mounts to have made.

Phil: International Defense contractor.

Philip Fain: The year over year comparison was compounded by a follow on leader radio order received in October 2024, which we pushed out beyond the first quarter due to material lead time. on a consolidated basis. The commercial to government defense sales split was 5842 for both the 2025 and 2024 first quarter Our total backlog with high confidence orders exiting the first quarter was 95 million and remains diverse in nature across our commercial and government defense customer base. The replenishment rate remains high, especially after a $50 million plus sales quarter, and the backlog represents a healthy 55% of trailing 12-month sales.

Phil: The year over year comparison was compounded by a follow on leader Radio order received in October 2024, which we pushed out beyond the first quarter due to material lead times.

Phil: On a consolidated basis, the commercial to government defense sales split was 50 842 for both the 2025 and 2024 first quarters.

Phil: Our total backlog with high confidence orders exiting the first quarter was $95 million and remains diverse in nature across our commercial and government defense customer base.

The replenishment rate remains high, especially after a $50 million plus sales quarter.

Phil: And the backlog represents a healthy 55% of trailing 12 month sales.

Philip Fain: Our consolidated gross profit was 12.7 million, up 11.1% from the 2024 period. As a percentage of total revenues, consolidated gross margin was 25.1%, a 230 basis point decline from the 27.4% reported for last year's first quarter, primarily reflecting product mix. Gross profit for our battery and energy products business was $11.4 million compared to $9 million last year, an increase of 27.3%. Gross margin was 24.7% compared to 25.7% last year and represents a 130 basis point sequential improvement over the fourth quarter. The year-over-year reduction resulted from product mix and non-recurring severance costs for the closure of one of our assembly plants in Canada.

Phil: Our consolidated gross profit was $12 7 million up 11.1% from the 2024 period as a percentage of total revenues consolidated gross margin was 25, 1% or 230 basis point decline from the 27, 4% reported for last year.

Phil: First quarter, primarily reflecting product mix.

Phil: Gross profit for our battery and energy products business was $11 4 million compared to $9 million last year, an increase of 27, 3%.

Phil: <unk> margin was 24, 7% compared to 25, 7% last year and represents a 130 basis point sequential improvement over the fourth quarter.

Phil: The year over year reduction resulted from product mix and nonrecurring severance costs for the closure of one of our assembly plants in Canada.

Philip Fain: For our communications system segment, gross profit was 1.3 million compared to 2.5 million for the year earlier period. Gross margin was 29.5% compared to 35.8% last year, primarily due to product mix in lower factory volume. Operating expenses were $9.3 million, an increase of $1.9 million, or 26.2% from the year earlier quarter. The year-over-year increase is comprised of $1.1 million related to the inclusion of electrochem, a 24% increase in new product development costs related to continued investments in our product offering, the strengthening of our sales and marketing leadership to expedite organic growth, and certain one-time, non-recurring expenses which include costs related to our acquisition of electrochem.

Phil: For our communication systems segment gross profit was $1 3 million compared to $2 5 billion for the year earlier period.

Phil: Gross margin was 29, 5% compared to 35, 8% last year, primarily due to product mix and lower factory volume.

Phil: Operating expenses were $9 3 million, an increase of $1 9 million or 26, 2% from the year earlier quarter.

Phil: The year over year increase was comprised of $1 1 million related to the inclusion of electric him at.

Phil: 24% increase in new product development costs related to continued investments in our product offering.

Phil: The strengthening of our sales and marketing leadership to extradite organic growth.

Phil: And certain one time nonrecurring expenses, which include costs related to our acquisition of electric him.

Philip Fain: As a percentage of revenues, operating expenses were 18.4% compared to 17.7% for last year's first quarter. Operating income was $3.4 million compared to $4.1 million last year, reflecting the 36.2% decline in communications system sales and the one-time acquisition costs in related gap purchase accounting adjustments, totaling $0.4 million. Accordingly, operating margin decreased to 6.7% for the first quarter compared to 9.7% for the 2024 first quarter. Other expense reported below operating income was $0.9 million for the quarter compared to $0.5 million for the year earlier period, primarily resulting from the increase in interest expense on the acquisition debt and the impact of foreign currency fluctuation.

Phil: As a percentage of revenues operating expenses were 18, 4% compared to 17, 7% for last year's first quarter.

Phil: Operating income was $3 4 million compared to $4 1 million last year, reflecting the 36, 2% decline in communication systems sales in.

Phil: And the one time acquisition costs and related GAAP purchase accounting adjustments totaling <unk> 4 million.

Phil: Accordingly, operating margin decreased to six 7% for the first quarter compared to nine 7% for the 2020 for first quarter.

Phil: Other expense reported below operating income was <unk> 9 million for the quarter compared to <unk> 5 million for the year earlier period, primarily resulting from the increase in interest expense on the acquisition debt and the impact of foreign currency fluctuations.

Philip Fain: Our tax provision for the first quarter was 0.6 million compared to 0.7 million for the 2024 quarter, computed on a gap basis at statutory rate. Net income was $1.9 million or $0.11 per share on a GAAP fully diluted basis. This compares to net income of $2.9 million or $0.18 per share for the 2024 quarter. Excluding the provision for non-cash U.S. taxes expected to be fully offset by our net operating loss carry forwards and other tax credits, adjusted fully diluted EPS was 13 cents per share for the first quarter of 2025 compared to 21 cents for the 2024 period.

Phil: Our tax provision for the first quarter was <unk> 6 million compared to <unk> 7 million for the 2024 quarter computed on a GAAP basis.

Phil: Cacciatore rates.

Phil: Net income was $1 9 million or <unk> 11 per share on a GAAP fully diluted basis.

Phil: This compares to net income of $2 9 million or <unk> 18 per share for the 2024 quarter.

Phil: Excluding the provision for noncash U S taxes.

Phil: Expect it to be fully offset by our net operating loss carryforwards and other tax credits adjusted fully diluted EPS was <unk> 13 per share for the first quarter of 2025 compared to 21 cents for the 2024 period.

Philip Fain: Adjusted EBITDA, defined as EBITDA including non-cash stock-based compensation expense, in one-time acquisition and other costs, as well as non-cash purchase accounting adjustments, not reflective of our ongoing operations, was $5.4 million, or 10.7% of sales. compared to 5.2 million or 12.5% for the prior year quarter. Adjusted EBITDA on a TTM basis is $16.7 million or 9.6% of sales. Turning to our balance sheet, we ended the first quarter with working capital of $70 million in a current ratio of 3.2 compared to $67.9 million in 3.3 for 2024 year end. Our liquidity remains solid, and we are positioned to pay down the principal on our acquisition debt quicker than the bank's amortization schedule.

Phil: Adjusted EBITDA defined as EBITDA, including noncash stock based compensation expense and one time acquisition and other costs as well as noncash purchase accounting adjustments not reflective of our ongoing operations was $5 4 million or 10 seven per.

Phil: <unk> of sales compared to $5 2 million or 12, 5% for the prior year quarter.

Phil: Adjusted EBITDA on a TTM basis is $16 7 million or nine 6% of sales.

Phil: Turning to our balance sheet, we ended the first quarter with working capital of $70 million and a current ratio of 3.2 compared to $67 9 million and $3 three for 2020 for year end.

Phil: Our liquidity remains solid and we are positioned to pay down the principal on our acquisition debt quicker than the bank's amortization schedule.

Philip Fain: I'm happy to report that on April 1, we received 1.5 million of our employee retention credit, including interest under the Coronavirus Aid Relief and Economic Security Act, filed with the IRS in June 2023. These funds in their entirety were used to reduce our acquisition debt, just subsequent to the conclusion of Q1. For more information, visit www.fema.gov And we just received the remaining ERC of $344,000, which will also be applied to our debt as an advance payment.

Phil: I'm happy to report that on April 1st we received $1 5 million of our employee retention credit, including interest under the Coronavirus aid relief and economic Security Act filed with the IRS in June 2023. These funds in their entirety, we use.

Phil: To reduce our acquisition debt just subsequent to the conclusion of Q1.

Phil: And we just received the remaining ERC of 344000, which will also be applied to our debt is an advanced payment.

Michael Manna: going forward, our backlog, diversified government defense, medical and oil and gas end markets, the sheer volume of our growth initiative. The further actions now underway to improve our gross margins. The vertical integration opportunities associated with our acquisition of electrochem. and our new sales, marketing and product innovation leadership position us well to realize the leverage of our business model.

Phil: Going forward, our backlog diversified government defense medical and oil and gas end markets.

Phil: The sheer volume of our growth initiatives.

Phil: Further actions now underway to improve our gross margins.

Phil: The vertical integration opportunities associated with our acquisition of electric him.

Phil: And our new sales marketing and product innovation leadership.

Phil: Position us well to realize the leverage of our business model I will now turn it back to Mike.

Michael Manna: I will now turn it back to Mike. Thank you, Phil, for the detailed review of the Q1 2025 results. As mentioned in the last call, we have some new priorities to accomplish in 2025. First, complete the transition of the ElectroChem acquisition into the Ultralife back office, which includes such items as cloud storage, email, and the main one being the ERP system. These are expected to complete by the end of Q2. We continue to leverage and grow vertical integration opportunities due to the newly acquired business, which allows ElectroChem cells to be used in some of our current pack assemblies and expands our addressable market for products like pipeline inspection, seismic telemetry, and sonobuoy.

Mike: Thank you Phil for the detailed review of the Q1 2025 results.

Mike: You mentioned in the last call we have some new priorities to accomplish in 2025.

Mike: First complete the transition of the electric <unk> acquisition into the Ultra life back office, which includes such items as cloud storage E Mail and the main one being the ERP system.

Mike: These are expected to complete by the end of Q2, we continue to leveraging drove vertical integration opportunities due to the newly acquired business, which allows electrocom cells to be using some of our current pack assemblies and expands our addressable market for products like pipeline inspection seismic telemetry and sign of buoys.

Michael Manna: Secondly, we need to improve our sales opportunity pipeline to support growth throughout 2025. We have made a concerted effort to improve our marketing through search engine optimization, targeted ads, and contact engagements at specific customers initially focused on our transformational project.

Mike: Secondly, when.

Mike: We need to improve our sales opportunity pipeline to support growth throughout 2025, we have made a concerted effort to improve our marketing through search engine optimization targeted ads and contact engagements at specific customers initially focused on our transformational projects.

Michael Manna: Third. We need to improve and stabilize gross margin through pricing, material cost deflation and lean productivity projects in both the battery and energy and communications businesses. We made the decision in Q1 to close our smallest manufacturing location in Missagua and move that production into various other facilities. All production activity in the Mississauga was completed by the end of April. This move will eliminate some fixed costs and redundant operations, as well as improve the engineering support for the products going forward. Pricing was adjusted as we moved into Q1 for both the battery and energy business and the communications business to offset known inflationary cost increases and regain gross margin parity on product.

Mike: Third.

Mike: We need to improve and stabilize gross margin through pricing material cost deflation and lean productivity projects in both the battery and energy and communications businesses.

Mike: We made the decision in Q1 to close our smallest manufacturing location in Massawa and move that production and the various other facilities.

Mike: All production activity in the Massawa was completed by the end of April.

Mike: This move will eliminate some fixed costs and redundant operations as well as improve the engineering support for the products going forward.

Mike: Pricing was adjusted as we moved into Q1 for both the battery and energy business and the communications business to offset known inflationary cost increases and regained gross margin parity on products.

Michael Manna: We continue to work various LEAN projects in the facilities, with one major LEAN initiative completed in Q1 in Newark, and several new projects identified for Q2 at the Electrochem Facility. The evolving tariff situation in Q1 was a distraction that delayed projects that were planned for operational efficiency gains in our supply chain group as we diverted resources to understand tariff impact and work mitigation plans.

Mike: We continue to work various lean projects and the facilities with one major lean initiative completed in Q1 in Newark, and several new projects identified for Q2 at the electric <unk> facility.

Mike: The evolving tariff situation in Q1 was a distraction delayed projects that were planned for operational efficiency gains in our supply chain group as we diverted resources to understand tariff impact and work mitigation plans.

Mike: Yeah.

Michael Manna: Next, I will give updates on the organic growth projects and new product development underway for the businesses, which are key to future sales and market expansion. The communication systems business is expanding the recognized server case portfolio to service new programs and server variants, which will provide greater opportunity to expand our market share. Our newest 3U portable server case is complete and finalizing verification with an initial low volume order expected to be delivered in Q2. Our recently launched DC power supply supporting various server platforms where no AC power is available, most notably tactical vehicles, is now undergoing final customer testing prior to expected contract award.

Mike: Next I will give updates on the organic growth projects and new product development underway for the businesses, which are key to future sales and market expansion.

Mike: The communication systems business, expanding the Ruggedized server case portfolio to service, new programs and server variance, which will provide greater opportunity to expand our market share our newest three U portable server cases, complete and finalizing verification with an initial low volume order expected to be deliver.

Mike: In Q2.

Mike: Our recently launched DC power supply supporting various server platforms, where no AC power is available most notably tactical vehicles is now undergoing final customer testing prior to expected contract awards.

Michael Manna: The newly developed 21 amplifier, which provides radio agnostic functionality to support international markets, remains on track for pre-production sampling in June. We developed this amplifier to further support the needs of the warfighter with what we believe is the smallest, lightest, and most power-efficient 20-watt man-portable amplifier in the marketplace. Meanwhile, we are advancing the design of our next high-performance amplifier, targeting advanced radio platforms with the latest advanced high-speed waveform. This advanced amplifier continues our heritage of small, high power, high efficiency, man worn and vehicular amplification projects, products. with the next variant expected to be available in late 2025.

Mike: The newly developed 21 amplifier, which provides radio agnostic functionality to support international markets remains on track for preproduction sampling in June we.

Mike: We developed this amplifier to further support the needs of the Warfighter with what we believe is the smallest lightest and most power efficient 20 Watt man portable amplifier and the marketplace.

Mike: Meanwhile, we are advancing the design of our next high performance amplifier targeting advanced radio platforms with the latest advanced high speed waveforms. This advanced amplifier continues our heritage of small high power high efficiency man worn in vehicular amplification projects products.

Mike: With the next variant expected to be available in late 2025.

Michael Manna: Lastly, the comms group has developed a handheld radio mount upgrade kit, which allows the installed base of single-channel radio mounts to be enhanced for compatibility with the newer two-channel handheld radios. An initial low volume order was received for the development and launch of this kit, which is available for general sale in Q2 of 2025.

Speaker Change: Lastly, the Comms group has developed a handheld radio upgrade kit.

Speaker Change: <unk> allows the installed base of single channel radio minds to be enhanced for compatibility with the newer two channel handheld radios and initial low volume order was received for the development and launch of this kit, which is available for general sale in Q2 of 2025.

Michael Manna: On the battery and energy side of the business, we're excited about the opportunity funnel growth across the variety of new and existing products, and are optimistic we'll see incremental orders in 2025. As mentioned earlier, we have established initial production capabilities for our thin cell technology to support customers in the medical wearables sector and various item tracking applications. The sales pipeline continues to strengthen with several projects now in the qualification phase. I'm pleased to report that a key partner, whom we worked with for several years on a medical wearable product, successfully received both FDA and EU MDR certifications for their back office system in Q4.

Speaker Change: On the battery and energy side of the business. We're excited about the opportunity funnel growth across a variety of new and existing products and are optimistic we will see incremental orders in 2025.

Speaker Change: As mentioned earlier, we've established initial production capabilities for our thin cell technology to support customers in the medical wearable sector in various item tracking applications.

Speaker Change: The sales pipeline continues to strengthen with several projects now in the qualification phase.

Speaker Change: I am pleased to report that a key partner when we worked with for several years on a medical wearable product successfully received both FDA and EU MTR certifications for their back office system in Q4. This.

Michael Manna: This milestone enables hospital deployment and marks a significant step towards full product commercialization. We anticipate receiving production orders by mid-2025, with limited volumes of shipments beginning later this year. Our 1-2-3-A product line, which currently serves the IoT and illumination markets, is seeing growing interest in medical battery pack assemblies for both domestic and international customers. We recently enhanced the product's high temperature performance through targeted design improvements, which will be implemented in production by mid 2025. Meanwhile, our advanced vinyl chloride technology aimed at monitoring and telemetry applications is progressing through customer qualification and field testing. Demand for our flagship 19 amp hour D cell continues to grow, with Sephro customers currently evaluating the product and production orders expected in 2025.

Speaker Change: This milestone enables hospital deployment and marks a significant step towards full product commercialization, we anticipate receiving production orders by mid 2025 with limited volumes of shipments beginning later this year.

Speaker Change: Our <unk> product line, which currently serves the Iot and illumination markets.

Speaker Change: The growing interest in medical battery pack assemblies for both domestic international customers. We've recently enhanced our products high temperature performance Youre targeted design improvements, which will be implemented in production by mid 2025.

Speaker Change: Meanwhile, our advanced vinyl chloride technology aimed at monitoring and telemetry applications.

Speaker Change: Progressing through customer qualification and field testing.

Speaker Change: Demand for our flagship 19, AFR diesel continues to grow with Zephyr customers currently evaluating the product and production orders expected in 2025.

Michael Manna: Following the acquisition of Electrochem on October 31st, we foresee expanded collaboration and new sales opportunity in the final chloride segment. the conformal wearable battery. originally developed for the Integrated Visual Augmentation System, or IVAS, continues to evolve as a commercial product to our internal development efforts. We have quoted several international production opportunities and began initial low volume shipments in Q1.

Speaker Change: Following the acquisition of electric Cam on October 31, we foresee expanded collaboration and new sales opportunity in the final chloride segment.

Speaker Change: The conformal wearable battery.

Speaker Change: Originally developed for the integrated visual augmentation system, our Ipass continues to evolve as a commercial product to our internal development efforts. We've quoted several international production opportunities and began initial low volume shipments in Q1.

Michael Manna: Our key gross margin improvement initiatives are making steady progress, and we expect continued gains as capital investments and lead projects are rolled out across our production line. To accelerate results and identify additional opportunities for sustainable gross margin gains, we have engaged an external firm for a series of assessments and support activities in Q2, starting at our Newark location. In parallel, we are executing targeted supply chain strategies to reduce material costs and actively manage tariff developments to mitigate impact. Regarding the Electrochem acquisition, we expect the main integration activities, including the ERP carve-out, to be completed in the first half of 2025.

Speaker Change: Our key gross margin improvement initiatives are making steady progress and we expect continued gains as capital investments and lead projects are rolled out across our production lines to accelerate results and identify additional opportunities for <unk> sustainable gross margin gains we have engaged an external firm for a series of <unk>.

Speaker Change: Assessments and support activities in Q2, starting at our Newark location.

Speaker Change: In parallel we are executing targeted supply chain strategy to use to reduce material costs and actively manage tariff developments to mitigate impacts.

Speaker Change: Regarding the electric <unk> acquisition, we expect the main integration activities, including the ERP carve out to be completed in the first half of 2025.

Michael Manna: Exiting Q1 with a strong increase in revenue of 21% year over year, and a healthy 11% increase in our battery products business, excluding our acquisition of Electric M, a 7% inventory reduction from the end of year, and a healthy backlog entering Q2, we have a strong foundation to build upon through the rest of the year. I believe our North American-based manufacturing locations, coupled with our strong pipeline of new products, will give a strategic advantage in the government and defense and oil and gas markets, and will provide increased opportunities going forward.

Speaker Change: Exiting Q1 with a strong increase in revenue of 21% year over year, and a healthy 11% increase in our battery products business, excluding our acquisition of electric.

Speaker Change: 7% inventory reduction from the end of year and a healthy backlog entering Q2, we have a strong foundation to build upon through the rest of the year.

Speaker Change: I believe our north American based manufacturing locations, coupled with our strong pipeline of new products will give us strategic advantage in the government and defense and oil and gas markets will provide.

Speaker Change: Increased opportunities going forward now.

Operator: Now back to the operator for questions. Thank you.

Speaker Change: Now back to the operator for questions.

Operator: At this time, we'll conduct a question and answer session. As a reminder to ask a question, you will need to press star one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while I compile the Q&A roster.

Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one of your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby will compile the Q&A roster.

Speaker Change: Okay.

Josh Sullivan: And our first question comes from the line of Josh Sullivan of the Benchmark Company.

Speaker Change: Our first question comes from the line of Josh Sullivan of the Benchmark Company. Your line is now open.

Michael Manna: Your line is not open. Hey, good morning. All right, John. Just given the qualification realities and the barriers of your products, how have the conversations with customers on tariff pass throughs evolved? I imagine they're thinking of their own pass throughs at this point as well, but curious on where you are on those conversations. Well, obviously, no one's, you know, excited about the fact that these tariff situations are in play right now. You know, overall, I think everyone understands that it's it's a cost that everyone's going to bear at some level. We're trying our best to, you know, reduce tariff impacts where we can.

Josh Sullivan: Hey, good morning.

Speaker Change: Good morning, Jonathan.

Speaker Change: Just given the qualification realities and the barriers of your products how have the conversations with customers on tariff pass throughs evolves I imagine they're thinking of their own pass throughs at this point as well, but curious on where you are in those conversations.

Speaker Change: Well, obviously no ones excited about the fact that these tariff situations are in play right now.

Speaker Change: Overall, I think everyone understands that.

Speaker Change: Costs that everyone is going to bear at some level.

Speaker Change: We're trying our best to.

Speaker Change: Reduced tariff impacts where we can.

Michael Manna: But you know, overall, the customers, you know, from the conversations I've had, they're really more worried about, you know, the cash flow and you know, the amount of cash being consumed at the border bringing product in. I mean, whether it's, you know, us or them with some of their suppliers, it's a definite impact on the upfront cash. And you know, that could have impacts later on. And you know, what are you going to spend your cash on? You need to keep your business flowing, you need production to keep flowing. But if you're spending it on tariffs at the border, it becomes harder to spend it on some of your product development and other things you need to invest in.

Speaker Change: But overall the customers.

Speaker Change: From the conversations Ive had they are really more worried about the cash flow and the amount of cash being consumed at the border, bringing product in I mean, whether it's us.

Speaker Change: Us or them with some of their suppliers.

Speaker Change: It's a definite impact on the upfront cash and that could have impacts later on and what are you going to spend your cash on you need to keep your business flowing production to keep flowing but if youre spending it on tariffs at the border it becomes harder to spend it on some of your product development and other things you need to invest and that's kind of.

Michael Manna: That's kind of, you know, how some of the conversations have went with me. And, you know, Josh, it's been circuitous, I think, between our supply chain and our customers. We're all asking ourselves the same questions. We're all asking each other the same questions. And the letters and the commentary, it's really it's all the same. It's not it's quote unquote, not a price increase. It's a variable surcharge that will absolutely it could go up, it could go down, it could be eliminated. So we're all kind of holding our breath. But it's it being in this situation where we're all facing the same hurdle, bring some camaraderie and some understanding along the way.

How some of the conversations have went with me.

Speaker Change: You know Josh is it's been a circuitous I think between our supply chain and our customers.

Speaker Change: We're all asking ourselves the same questions. We're all asking each other same questions.

Speaker Change: The letters in the commentary it's really it's all the same its not as quote unquote not a price increase it's a variable surcharge that will absolutely. It could go up it could go down it could be eliminated. So we're all kind of holding our breath, but it's.

Speaker Change: Being in this situation, where we're all facing the same hurdle bring some camaraderie and some understanding along the way.

Josh Sullivan: Thanks for that.

Michael Manna: And then just on ElectraChem, you know, you mentioned some of the ERP carve out and some of the milestones, but what are the major milestones left here? Are you confident in that 2Q close or ending of it? And then you mentioned some of the vertical integration advantages and prepared remarks there.

Speaker Change: Got that.

Speaker Change: And then just on electric.

Speaker Change: You mentioned some of the ERP carve out some of the milestones, but what are the major milestones left here you comprehend that <unk> close in there.

Speaker Change: Okay.

Speaker Change: And then.

Speaker Change: You mentioned some of the vertical integration advantages in prepared remarks, there can you just expand on those and highlight those.

Michael Manna: Can you just expand on those and highlight those? Yeah, I can I can start off, you know, basically, we've been kind of knocking down things in their system side over the last 1314 weeks. To begin with, you know, we have the networks up and running in at all the facilities, we're rolling out new laptops, you know, the mail and office and all the back stuff is actually set up, it's just a matter of transitioning all the people in over to it. And really, the biggest transition piece is really finishing all the setup of the ultralife ERP with the electro chem items, we've got the data, all the data has been transitioned, but there's other things that need to be set up specifically for the ERP system we use, like work centers and certain things like that.

Speaker Change: Yeah, I can start off base.

Basically we've been kind of knocking down things in their system side over the last well 13 14 weeks.

Speaker Change: Begin with.

Speaker Change: The networks up and running at all the facilities are rolling out new laptops.

Speaker Change: The mail in office and all the back stuff is actually set up it's just a matter of transitioning all of the people in over to it.

Speaker Change: Really the biggest transition pieces is really finishing all the setup of the ultra life ERP.

Speaker Change: With the electric items and we've got the data all the data has been transitioned but theres other things that need to be set up specifically for the ERP system, we use like work centers and certain things like that.

Michael Manna: And we're working through that now. But right now, it looks like we're on track, I don't see any big hurdles to that. You know, there may be some smaller side system things that linger into q3. But you know, they're not the priority to run the business. And, you know, they're not the big cost items that that we need to worry about right now. As far as the integration activities go, you know, we buy a lot of cells in our oil and gas business. Electrochem was a... not a main supplier to us prior to the acquisition.

Speaker Change: We're working through that now, but right now it looks like were on track I don't see any big hurdles to that.

Speaker Change: There may be some smaller side system things that linger into Q3, but they are not the priority to run the business and theyre not the big cost items that we need to worry about right now.

Speaker Change: As far as the integration.

Speaker Change: Activities go you know, we buy a lot of cells in our oil and gas business electric and was not.

Speaker Change: Not a main supplier to us prior to the acquisition.

Michael Manna: So there's obviously a a a world of opportunity there with what they weren't supplying to move their cells into some of those packs. You know, so we're working through that. But you know, we do have supply agreements with, you know, the old partners and you know, they're good partners as well that we don't necessarily want to just totally move away from. So, you know, it's a balancing act. But you know, we'll start seeing some of those benefits as we go on to Q3 and Q4.

Speaker Change: So there's obviously a.

Speaker Change: In a world of opportunity there with what they werent supplying to move their cells into some of those packs.

Speaker Change: So we're working through that but we do have supply agreements with the.

Speaker Change: The old partners and they are good partners as well that we don't necessarily want to just totally move away from.

So it's a balancing act, but we will start seeing some of those benefits as we go into Q3 and Q4.

Philip Fain: And Josh, I'll just add this from a financial standpoint, Electro-Chem's contribution margin is very, very favorable. And what I'm most excited about is recognizing that contribution margin through the internal use, through pure vertical integration, recognizing that into our P&L. It's very accretive. Got it.

Speaker Change: And Josh I would just add that from a financial standpoint electric EMS contribution margin is very very favorable and what I'm. Most excited about is recognizing their contribution margin through the.

Speaker Change: The internal use to pure vertical integration recognizing that into our P&L.

Speaker Change: It's very accretive.

Michael Manna: And then just on the commercial options for the IBAS battery, you know, what markets would those be or products with those would those be? Well, I wouldn't necessarily say they're commercial, Josh, I would say they're foreign military more than U.S. military at this point. You know, there are some commercial engagements going on, but we really believe, you know, the main sales focus is still going to be military in nature, just offshore to begin with.

Speaker Change: Got it got it.

Speaker Change: And then just on the commercial options for the battery what markets would those be our products with those would those be.

Well I wouldn't necessarily see their commercial Josh I would say, they're foreign military more than U S. Military at this point.

Speaker Change: There are some commercial engagements going on but we really believe the main.

Speaker Change: The main sales focus is still going to be military in nature, just offshore to begin with.

Michael Manna: And then, Mike, you noted in the press release, you know, increased confidence and profitable growth and, you know, just wanting to hear you expand on that, just, you know, given some of the macros and uncertainties out there. Well, you know, we were progressing, you know, it's, you know, we talked a lot about a lot of our transformational projects and all these, these calls. And, you know, it seems like we're in a never ending state of, of qualification and validation and field testing and whatnot, but we are coming to the end of some of those. So we do see some some light at the end of the tunnel there.

Speaker Change: Got it.

Speaker Change: And then Mike you noted in the press release increased confidence and profitable growth.

Speaker Change: Just wanted to hear you expand on that just given some of the macros and uncertainties out there.

Speaker Change: Well.

Speaker Change: We're progressing.

Speaker Change: We talk a lot about a lot of our transformational projects in all of these these calls and you know it seems like we're in a never ending state of Av.

Speaker Change: Qualification and validation and field testing and whatnot, but we are coming to the end of some of those so we do see some some light at the end of the tunnel there.

Michael Manna: Q1 actually was a better quarter than we anticipated. And it was stronger. Q2 right now seems good. So at least right now, you know, I think our business is in a pretty good place. And, you know, our first quarter, you know, you saw the medical sales were down year over year quite a bit. You know, we expect that to come full circle back in probably the back half of the year. That's a little bit of a sick, sick locality with battery replacement cycles and some of the production items going on there. So, you know, I think we're comfortable in in 2025 here.

Speaker Change: Q1, actually was a better quarter than we anticipated.

Speaker Change: And it was stronger.

Speaker Change: Q2, right now seems good.

Speaker Change: So at least right now I think our business is in a pretty good place.

Speaker Change: Our first quarter you saw the medical sales were down year over year quite a bit.

Speaker Change: We expect that to come full circle back in probably the back half of the year, that's a little bit of a sick cyclicality with battery replacement cycles and some of the production items going on there.

Speaker Change: So I think we're comfortable and in 2025 here.

Operator: You know, our the biggest probably wildcard is really our comm systems business, which is still got quite a bit of business involved with government contracts, which, you know, flow as they flow, you know, we don't have a lot of control over those orders in that time Got it. I'll leave it there. Thanks for your time. Okay. Thank you. One moment for our next question. Again, as a reminder to ask a question, you'll need to press star 1-1 on your telephone.

Speaker Change: The biggest probably wildcard is really our comm systems business, which has still got quite a bit of business involved with government contracts, which.

Speaker Change: Slow as they flow, we don't have a lot of control over.

Speaker Change: Orders in that timing.

Speaker Change: Got it.

Speaker Change: Makes sense, okay. Thanks, alright, thank you.

Speaker Change: Thank you one moment for our next question again as a reminder to ask a question you will need to press star one on your telephone.

Justin Machete: And our next question comes from a line of Justin Machete of Sidodium Company. Your line is now open. Good morning. Thank you for taking questions. Good morning, Justin. Sure.

Speaker Change: And our next question comes from the line of Justin <unk> of Sidoti and company. Your line is now open.

Justin: Good morning, Thank you for taking the questions.

Speaker Change: Turning to furniture.

Michael Manna: Can you provide detail on the current trends you're seeing across key end markets, particularly in government, defense and medical, and how those dynamics are shaping your expectations for backlog and overall demand visibility? Yeah, I can give you some color from my seat. I mean, on the medical side, you know, a lot of the applications that we're in are what I would call necessary applications. And a lot of the products that we support have, you know, known replacement cycles as far as the battery life and how long it's allowed to be in field. So we're actually coming up on a period where some of the late fielded COVID devices will probably need battery or well, I will need battery replacement.

Speaker Change: Can you provide detail on the current trends youre seeing across key end markets, particularly in government defense and medical and how those dynamics are shaping your expectations for backlog and overall demand visibility.

Speaker Change: Yeah, I can give you some color from from my seat I mean on the medical side.

Speaker Change: A lot of the applications that were entered.

Speaker Change: What I would call the necessary applications and a lot of the products that we support have.

Speaker Change: <unk> known replacement cycles as far as the battery life and how long it is allowed to be in field.

Speaker Change: So we're actually coming up on a period, where some of the late fielded COVID-19 devices will probably need battery or will need battery replacements.

Michael Manna: So, the medical side, it's relatively steady at this point. It has some quarter-to-quarter variation, but I don't see it just going away at all. On the government defense side, we sell a lot to primes. We sell a little bit direct to the U.S. military. Again, a little bit of cyclicality, but overall, it's still been pretty strong through the first quarter. We have a pretty good backlog in Q2, and right now, at least the customers that we're talking to don't seem to see really any fall-off in 2025. You look around the world right now, we're not in necessarily the safest environment, and it seems like conflicts are breaking out in a lot of different areas.

Speaker Change: So the medical side.

Speaker Change: Relatively steady at this point.

Speaker Change: It has some quarter to quarter variation, but I don't see just going away or at all.

Speaker Change: On the government defense side.

Speaker Change: We saw lots of primes, we saw a little bit to the direct to the U S military.

Speaker Change: Again, a little bit of cyclicality, but.

Speaker Change: Overall, it's still been pretty strong through the first quarter, we have a pretty good backlog in Q2.

Speaker Change: And right now at least the customers that we're talking to you don't seem to see.

Speaker Change: Really any falloff in 2025, and you look around the world right now we're not in the necessarily the safest environment and it seems like conflicts are breaking out in a lot of different areas.

Michael Manna: We don't expect our government defense business to really suffer much. If anything, we expect to possibly see some increases from the conflict areas and also some increased NATO spend, which we expect to happen over the next 18 to 24 months to catch up.

Speaker Change: So we don't expect our government defense business, there really <unk>.

Speaker Change: Suffer much if anything we expect to possibly see some increases from.

Speaker Change: From the conflict areas and also some increased NATO spend which we expect to happen over the next 18 to 24 months to catch up.

Justin Machete: Great, thanks for the color there.

Speaker Change: Great. Thanks for the color there.

Philip Fain: And then on free cash flow, can you discuss how you expect free cash flow to trend over the remainder of 2025? Yeah, free cash flow, we expect that to be very consistent. Also, you know, we look at last year, Justin, and the first half of last year was absolutely fantastic. In the first half of last year, we paid down $20 million of debt. And things got a little bit softer in the latter half of the year. And then you learn you learn from your past. So the lessons learned are very clear. It's level loading, level loading across the board from purchase of your of your supplies to your production, even through your sales, results in in in exactly what we're looking for more consistency in the cash flows.

Speaker Change: And then on free cash flow can you discuss how you expect free cash flow to trend over the remainder of 2025.

Speaker Change: Yes free cash flow, we expect that to be very consistent to also we look at last year just in in the first half of last year was absolutely fantastic.

Speaker Change: First half of last year, we paid down $20 million of debt.

Speaker Change: Things got a little bit softer in the latter half of the year and then you alert you learned from your past. So the lessons learned are very clear its level loading level loading across the board from purchase of your of your suppliers to your production even through your sales.

Speaker Change: Results in <unk>.

Speaker Change: And exactly what we're looking for more consistency in the cash flows and right now our positive cash GAAP receivables greater than payables is is in very very good shape. That's why I made the comment that we're looking at.

Operator: And you know, right now our positive cash gap receivables greater than payables is, is in very, very good shape. That's why I made the comment that we're looking at being in a position continuing to pay down our debt in advance of the bank's amortization schedules. And I expect based on what I'm seeing right now, with the backlog and certain other things that Mike and I are privy to, we expect cash flow to be even throughout the year. based on what we're seeing right now. Very helpful. Thank you. I'll turn it back. Thank you. I'm showing no further questions at this time.

Speaker Change: Being in a position continuing to pay down our.

Speaker Change: Our debt in advance of the bank's amortization schedules.

Speaker Change: And I expect based on what I'm seeing right now with the backlog and certain other things that Mike and I are privy to we expect cash flow to be even throughout the year.

Speaker Change: Based on what we're seeing right now.

Speaker Change: Very helpful. Thank you I'll turn it back to that.

Speaker Change: Great.

Speaker Change: Sure.

Speaker Change: Thank you I'm showing no further questions at this time I'll now turn it back to life management for closing remarks.

Michael Manna: I'll now turn it back to Ultralife Management for closing remarks. All right. Thanks for listening. Thanks for listening to today's call. We look forward to talking to you next time during the Q2 2025 earnings call. Bye, everyone. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Please Subscribe If You A enroll in the Award-Winning Channel

Speaker Change: Alright.

Speaker Change: Thanks to list. Thanks for listening today's call. We look forward to talking to you next time during Q2 2025 earnings call.

Speaker Change: Bye everyone.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].