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Edited Transcript of ULBI earnings conference call or presentation 3-Aug-17 2:00pm GMT

Thomson Reuters StreetEvents

Q2 2017 Ultralife Corp Earnings Call

Newark Aug 13, 2017 (Thomson StreetEvents) -- Edited Transcript of Ultralife Corp earnings conference call or presentation Thursday, August 3, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John W. Heilshorn

Lippert/Heilshorn & Associates, Inc. - Founding Partner

* Michael D. Popielec

Ultralife Corporation - CEO, President & Director

* Philip A. Fain

Ultralife Corporation - CFO, Principal Accounting Officer, Treasurer & Corporate Secretary

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Conference Call Participants

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* Gary Steven Siperstein

Eliot Rose Asset Management, LLC - Founder, Managing Member, and President

* Sam Bergman

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Presentation

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Operator [1]

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Good day, and welcome to this Ultralife Corporation Second Quarter 2017 Earnings Release Conference Call. At this time, for opening remarks and introductions, I'd like to turn the conference over to Mr. John Heilshorn. Please go ahead.

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John W. Heilshorn, Lippert/Heilshorn & Associates, Inc. - Founding Partner [2]

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Thank you, operator, and good morning, everyone. Thank you for joining us this morning for the Ultralife Corporation's earnings conference call for the second quarter of fiscal 2017. 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. 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 under Investor News 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 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 U.S. military spending, uncertain global economic conditions, and acceptance of the company's 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 factors and other factors that could affect Ultralife's financial results is included in Ultralife's filings with the Securities and Exchange Commission filings, including the latest annual report on Form 10-K. In addition, on today's call, management will refer to certain non-GAAP financial measures that management considers to be useful metrics that differ from GAAP. These non-GAAP measures should be considered as supplemental to corresponding GAAP figures.

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

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [3]

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Good morning, John, and thank you, everyone, for joining the call this morning. Today, I'll start by making some overall comments about our Q2 2017 operating performance. Then 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 our progress against our 2017 revenue initiatives, then open it up for questions. For Q2 of 2017, we were pleased to deliver another solid quarter of year-over-year operating profit and earnings per share growth, generating an operating profit of $1.3 million for an operating margin of 6.6%, up 410 basis points year-over-year.

Earnings per share was $0.07, more than two times last year's Q2 reported $0.03. Second quarter 2017 revenue was $19.9 million, roughly 2% below the prior year, which included $3 million of shipments under last year's VIPER Contract with our communications systems business. That said, when excluding the impact of this prior year large contract, total company revenues were up 15% with total battery and energy products business revenues up 7% and the base communication systems business revenues up 92%.

This is noteworthy as the communications systems base business sales increase drove a very favorable mix and gross margin improvement in the communications systems business, such that when combined with the battery and energy products topline revenue growth and ongoing disciplined cost reductions in both businesses, led to a more than doubling of the year-over-year operating earnings reported for the second quarter 2017.

In a few minutes, I'll talk more about our revenue initiatives for 2017 but first, I'd like to ask Ultralife's CFO, Phil Fain, to take you through additional details of the second quarter 2017 financial performance. Phil?

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Philip A. Fain, Ultralife Corporation - CFO, Principal Accounting Officer, Treasurer & Corporate Secretary [4]

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Thank you, Mike and good morning, everyone. Earlier this morning, we released our second quarter results for the period ended July 2, 2017. We also filed our Form 10-Q with the SEC this morning and have updated our investor presentation in the Ultralife website. I would like to personally thank all of those that were responsible.

For the second quarter, consolidated revenues totaled $19.9 million, representing a $0.4 million or 2.1% decrease from the $20.4 million for the second quarter of 2016. Revenues from our Battery and Energy product segment were $16.9 million, an increase of $1.1 million or 7.1% from last year. The year-over-year increase was attributable to higher commercial and government and defense sales. Commercial revenues for the first quarter of 2017 grew 11% driven by a 10% increase in shipments to medical customers, supplemented by a 12% increase across our expanding commercial customer base.

Government and Defense sales increased 1% over the 2016 period, due primarily to higher shipments to our international defense customers. After four quarters of year-over-year sales declines in 2016 from this sector, this year, we have posted two consecutive quarters of growth in Government and Defense Sales. As a result, the Battery and Energy product sales split between commercial, and government, and defense was 64-36 compared to 62-38 for the 2016 period.

Sales to our medical customers comprised 32% of total revenues for the segment, representing one-half of our commercial sales. The geographic distribution of our Battery and Energy Product Sales was more diverse with an international to domestic split of 57-43 compared to 51-49 for the 2016 second quarter.

Communication System Sales of $3.1 million decreased by $1.5 million or 33.7% from the prior year when we had $3.0 million of VIPER Unit shipments. Offsetting the decline, the segment's core products, including 20-watt amplifiers, universal vehicle adapters, and power supplies increased 92% over the year earlier period. On a consolidated basis, the Commercial to Government and Defense split was 54-46 versus 48-52 for the year earlier period, reflecting the higher rate of growth for our commercial business in the quarter.

Our consolidated gross profit was $6.2 million compared to $5.9 million for the 2016 period, an increase of 5.4%. As a percentage of total revenues, consolidated gross margin was 31.2% versus 29.0% for last year's second quarter. The 220 basis points improvement in gross margin resulted from the favorable sales mix of products in our communication systems business. This represents the third consecutive quarter that our consolidated gross margin exceeded 31%.

Gross profit for our Battery and Energy products business increased 1.7% from $4.6 million in 2016 to $4.7 million, reflecting higher sales, partially offset by incremental supply chain and logistics fees incurred during the quarter. As a result, gross margin was 28.1%, 150 basis points lower than the 29.6% reported last year.

For our Communications Systems segment, gross profit was $2.1 million, an increase of $0.8 million, or 68.3% from the year-earlier period. Gross margin was 48.4%, a significant basis point gain over the 26.8% reported for last year's second quarter, and the highest ever reported for the segment. The 2017 gross margin demonstrates the high value proposition associated with our core amplifier and integrated solutions products.

Operating expenses totaled $4.9 million compared to $5.4 million last year, a decrease of $0.5 million, or 9.3%. The decrease reflects the favorable impact from discretionary spending reductions completed during and subsequent to the second quarter of 2016 and cost synergies associated with our acquisition of Accutronics. As a percentage of revenue, operating expenses represented 24.6%, an improvement of 190 basis points from the 26.5% reported for the second quarter of 2016.

Operating income for the second quarter of 2017 was $1.3 million compared to $0.5 million for the 2016 period, a 2.6x gain. This represents the fourth consecutive quarter that the company has reported over $1 million of operating income. Operating margin was 6.6% for the 2017 period, an increase of 410 basis points over the 2.5% for the second quarter of 2016. The 410 basis point increase reflects the 220 basis points improvement in gross margin and the 190 basis point reduction in the operating expense to sales ratio.

Second quarter non-cash operating expenses, including depreciation and tangible asset amortization, and stock compensation expenses, amounted to $1.0 million compared to $0.9 million for the year earlier period. This brings us to adjusted EBITDA defined as EBITDA, including non-cash stock based compensation expense of $2.3 million or 11.5% of sales versus $1.5 million or 7.2% for the second quarter of 2016. This represents the fourth consecutive quarter that we have reported adjusted EBITDA of over $2 million and an EBITDA margin in excess of 10%.

Accordingly, adjusted EBITDA for the trailing 12-month period is now $9.3 million, representing 11.3% of revenues. Other expenses, primarily comprised of interest expense and foreign currency transactions totaled $49,000 versus $24,000 in 2016 and our tax provision was $179,000, primarily reflecting the amounts and geographic mix of earnings. Our tax provision was $33,000 for the 2016 second quarter.

Driven by this solid operating performance, net income was $1.1 million or $0.07 per share compared to $0.4 million or $0.03 per share for the same period last year. On a trailing 12-month basis, earnings per share increased to $0.36, representing a 57% increase over the $0.23 reported at year-end and a 13% increase over the $0.32 reported at the end of the first quarter.

Also driven by the solid operating performance, the company's liquidity remains strong, with cash on hand of $15 million, no debt, working capital of $42.9 million and a current ratio of 4.6. The increase in our cash on hand from $10.7 million at year-end demonstrates our highly efficient cash conversion. As our operating cash flow remains at a level exceeding 2x our operating profit.

In summary, the actions we are taking to drive profitable growth are demonstrated with our solid first half of 2017. Our intent remains on driving volume and sales through further organic and synergistic initiatives to unleash the full leverage potential of our business model.

I will now turn it back to Mike.

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [5]

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Thanks, Phil. For 2017, to continue the broadening of our revenue growth opportunities, our focus remains 3 proven elements -- expanding our market and sales reach, new product development, and acquisitions.

Regarding market and sales reach expansion in the Battery & Energy Products business, the approach has been to diversify more into the global commercial and international government defense markets to lessen our historical concentration in the U.S. government and defense market. In the second quarter of 2017, total B&E Commercial revenue was up 11% year-over-year, while international Battery and Energy Products government defense sales were over three times the prior year's revenue level.

Looking deeper into commercial revenue, which represents 64% of total B&E Q2 revenue, our overall medical market sales were up 10%, (inaudible) shipments representing about $4.4 million or 80% of our total medical sales in the second quarter, included battery and charger products serving applications such as breathing devices, infusion pumps, automated external defibrillators, and medical carts. We also received a purchase order from an existing U.S. customer valued close to $1 million for AED batteries to ship by year-end, and secured exclusivity as the ongoing battery supplier for a significant European medical OEM through 2022 and valued at approximately $4.8 million per year.

We continue to be engaged in pursuing several European growth initiatives involving new projects, cross-selling, and extending distribution. Present new business development projects touch a diverse set of applications, such as pharmaceutical delivery systems and other new medical devices, remotely located industrial valves, and in-flight entertainment.

Cross-selling activities included recently providing samples of an

Accutronics Smart Battery to a longtime U.S. defense customer, and gaining a new entry point with the global procurement arm of a large medical OEM in the USA due to an existing relationship with Accutronics in Europe.

We have also recently added some new European distributors. We're broadening our reach into local military, industrial, and medical customers. Other noteworthy B&E commercial activity in Q2 included an order of maturity, working on several custom ThinCell development opportunities for the Internet of things and medical applications, shipping a new Sealed Lead Acid replacement battery for customer evaluation in a warehouse robotics application, and receiving a follow-on purchase order for rechargeable batteries and chargers for use in industrial measurement equipment to be delivered in 2017.

So in total, our Battery and Energy Products Commercial revenues continue to grow at a steady pace, with medical making up a significant part of that increase. We are also gradually penetrating further into other commercial end markets such as institutional and the Internet of Things for various applications of our products used in instrumentation, sensing, asset tracking, and other devices.

Regarding our international government defense activity, in Q2, we shipped $1.2 million in Land Warrior batteries and charges to an international defense contractor against a $2.2 million award received in Q1, and we received an additional $1.1 million new order from another international defense customer for rechargeable batteries on top of the $1 million award received also in Q1.

These ongoing transactions resulted in a strong year-over-year increase in Q2 international government defense revenue. In terms of the U.S. government defense B&E products business, although the actual revenue realization in Q2 2017 was below the prior year, which dampened the strong results reported from our international government defense, we do see positive indicators for the U.S. Government Defense sector in that the inquiry, RFQ, and IDIQ activity level truly appears to be increasing. In the meantime, we've begun work on the next generation BA-5390 battery in support of the not to exceed $21.4 million IDIQ contract received in March.

We remain closely in contract with various DOD contracting channels regarding the timing of potential awards for numerous other inquiries in play, and we are actively engaged in the collaborative development of battery and charger solutions that form integral parts of the next generation tech and communication products being fielded by our global radio OEM customers.

We are pleased that our commercial and international diversification strategy has enabled us to achieve topline revenue growth in our Battery and Energy products business without depending so heavily on the U.S. Government Defense business. We are also well positioned to take advantage of additional revenue and operating leverage opportunities with any increase in U.S. government defense spending and/or when current projects under development reach maturity.

Regarding B&E new product development, Q2 2017 revenue from products introduced (inaudible) three years ago was $4.5 million or 26% of total B&E revenues. Progress continues on hosting new product developments, including but not limited to communication recharger products for our new yet major medical device customer, and a custom charger for a ventilator device for a long-term medical OEM customer.

We are also providing sample volumes of a new Sealed Lead Acid replacement UN smart battery launched in Q1 for general medical card applications and supplying several unique sizes of our ThinCell products tailored to specific requirements, especially in the growing Internet of Things and wearable markets.

We continue to provide value and expand our customer relationships by closely collaborating with them in the development of new products and the evolution of existing products, in helping them improve their products' competitive advantage.

Furthermore, to take full advantage of the opportunity presented by the rapidly growing Internet of Things market, we are investing up to $4.3 million of strategic capital in our USA Battery and Energy products facility in Newark, New York to modernize our manufacturing capability for making a premium, 3-volt primary battery product line tuned for various applications.

We're leveraging our product development and manufacturing technology expertise to produce a differentiated product with clear competitive advantage in terms of product performance, volume, safety, price value proposition, and strategic supply chain access to the North America end market and OEMS.

Expanding our 3-volt product line is a natural evolution of our high capacity 9-volt battery and allows us to take advantage of a technological and consumer migration to all things wireless. We also plan to offer 3-volt products to OEM customers in the legacy smoke detector market but giving them a choice between an industrial and industry leading, next generation 9-volt product, and a new premium 3-volt product. This capital invested project implementation and applicable new product certification processes are expected to be completed by the end of 2018.

While we will also continue to invest in our capability to develop and manufacture new and existing ThinCell and 3-volt products in China, we decided to make this new investment in our USA facility due to the attractive economics, implementation complexity, and access to the North American market. Our goal is to produce the highest value proposition, best quality, and safest products, and to do so in one of our global locations that best serve the supply chain of our end market and OEM customers wherever they may be located.

Regarding Communications Systems, to drive expansion of our market reach in sales, the team remains fully engaged with global special operations groups in the major radio program OEMs. Emerging radio market initiatives are enabling continued collaboration activities with OEMs from multiple domestic and international programs. Some of these programs are for the modification through multigenerational product plans of our standard products to accommodate new and emerging requirements, and others are new product developments, with significantly improved performance and capabilities to support emerging waveforms, radio characteristics, and operational usage requirements. New product development requirements include various amplifier, power supply, and communications accessory systems.

In Q2 of 2017, Communications Systems new product development revenue from products less than or equal to three years old represented approximately 80% of sales with about half of that from continued shipments of universal vehicle adapters in support of the various family of special operation vehicles programs. In the first half of 2017, new product development represented approximately 41% of sales spread across multiple new product development products. Our upfront engineering collaboration has resulted in an increased tempo of queries, providing additional opportunities for revenue growth from new product developments and multigenerational product plans. Recurring and frequent contact with major radio technology OEMs provides the greatest opportunity to secure large program wins and to achieve multiyear sustained revenue.

The focus for Communications Systems for the remainder of 2017 is continued growth in revenue from its core business products and simultaneously capturing larger program opportunities, critical to leveraging the Communications Systems business model and profitability.

In closing, in Q2 of 2017, driven by continued investments in market and sales reach expansion and new product development, we capped off the first half by delivering strong year-over-year earnings growth on the solid performance of many of our core revenue streams. We are also generating strong cash flow.

In the second half of 2017, we will continue to expand our revenue growth prospects in the Commercial and both International and Domestic Government Defense markets. When combined with disciplined execution of our business model, and full contribution of our worldwide capabilities, these revenue increases position us to achieve additional operating leverage and another year of profitable growth.

Longer-term, we currently see at least four key areas as potential emerging catalysts to accelerating revenue growth -- continuing to achieve high single digit plus medical market growth, an aggressive push or big splash in the Internet of Things market, a major government defense deal, and lastly, a meaningful acquisition.

Our clean balance sheet, efficient cash generation, and access to capital give us the flexibility to aggressively pursue all of these targets.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Sam Bergman with Bayberry Asset Management.

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Sam Bergman, [2]

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Can you elaborate a little bit more on the $4.5 million facility that you're putting up? When is that going to be up and running and what kind of business are you seeing for the Internet of Things that prompted you to do that?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [3]

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Great question. When we look at the overall Internet of Things market, there's a ton of information out there and it's hard to pick one that's the best predictor of the future. But there's anywhere in literally the tens of billions of total number of units of all different kinds that are serving this sort of emerging space. And we sort of move it down to what we think is the battery component of it.

But in addition to the overall size of the market, it's got a really fast growth rate. We're seeing anywhere from 15% to 20% in most of the different outside expert opinions. The 3-volt battery system that we're looking at, we tried to get a feel for what the size of that overall market was, and being reasonably conservative but logical about it, we can see that 3-volt battery portion to be anywhere from about 50 to 100 million units per year.

You try to put that into context. If you think about it, there's about 125 million households in the United States and as each household gets more engaged in wireless devices and Internet of Things, you start to get an order of magnitude of what -- if each household just had one or I know in our household we probably have a dozen or so -- what the overall size of the market could be.

And then we took it a step further and said, okay, if we think given our presence in, say, our 9-volt and other battery areas, if we could somehow capture between 5% and 10%, let's call it 7.5% of the market, it's anywhere between 4 million and 8 million units a year. And we look at that potential capacity need. We looked at the desire to do that through a highly automated process to take advantage of the repeatability and the volume and the cost position we could have, and we looked at it from the standpoint depending on what an average selling price would be of the product, of maybe driving between $4 million, $8 million, $10 million a year of incremental revenue on top of the Battery and Energy products business. And for a business right now that is roughly around $65 million or so, as of last year, that would represent anywhere from 6% to 10% additional topline organic growth.

So anytime we could get another 6%, 10%, 12% on top of our existing growth rates, and particularly in a market segment, which is growing at double-digits as a minimum, it seemed to be very attractive. And from the standpoint of making the investment, this is an investment that we're putting inside our existing facility in Newark, New York, which just yields further dividends of operating leverage of overall manufacturing capabilities. So that was sort of the basis of the overall investment.

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Sam Bergman, [4]

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A couple accounts that you mentioned with batteries in the medical area going into defibrillators and other areas, can you talk about, are they with leading companies? Are they with small companies? Number one, two in the marketplace or not?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [5]

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They're with major AD manufacturers. They're names that you would know, and see up on walls in airports and other places you may visit.

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Sam Bergman, [6]

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Any color on business with Harris going into the second half of the year?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [7]

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We don't comment specifically on any particular customer activity, but in the overall area of tactical communications, we're still actively involved with all the radio OEMs. Sometimes we provide amplifiers. Sometimes we provide battery packs. But in any event, those relationships are very solid, very consistent and it's just that in their end market, they're usually the army or other special forces groups tends to be lumpy from time to time. So typically, when we see a high level of revenue coming in, that's through a radio program that's currently in play.

But what we don't see is all the development activity that's happening behind the scenes for the next generation of radios. And as we know, radios continue to evolve. I would just characterize our relationship involvement with the global radio OEMs to be very solid and very consistent.

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Sam Bergman, [8]

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RFPs for communication systems, how are they right now and how would you compare them to last year?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [9]

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I think the RFP activity for sure is increasing and there's some notable RFPs that we're following and the industry is following to come out from the Army throughout this year. I also think the team there is really fine-tuned well, how they apply their precious financial and human resources so that we're chasing the pertinent number of new projects at any given one time so we can really help our customers achieve a competitive advantage versus just working on a whole bunch of different projects, not really sure which one is going to hit and really not helping our customers too much and spending a whole bunch of money along the way.

I think the team has really matured in that regard and we're very excited about their prospects for large programs going forward.

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Operator [10]

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We'll take our next question from Jason Siperstein with Eliot Rose Wealth Management.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [11]

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Hi, this is Gary for Jason. Just following up on your comments, Mike, on this investment in IoT. So it's not adding to the particular facility you had. This is within your current structure and you expect the $4.3 million to be spent over 18 months to the end of 2018; is that how you're gauging it?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [12]

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Yes, definitely inside the facility and up to $4.3 million with that project being completed by the end of next year.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [13]

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Okay, any sense on what that can do for efficiency in margins as you spend the money? I assume you have some 3-volt products now and there's some sales going on now? And as you evolve that product line and get -- so I'm assuming they will be between now and the end of 2018 some additional revenues. So will that have better margins because of the extra efficiency in the facility?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [14]

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Conceptually, for sure. We're not planning on making massive increases of costs in our facility. We're just getting much better leverage on things like our variable overhead component. So logically speaking, we definitely assume that there would be some increased leverage and opportunity for gross margin improvement by putting it here in the facility in Newark.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [15]

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Okay. And you mentioned a production line on 3-volts. How many specific individual products do you look for creating?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [16]

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I'm not going to get specific in the number of products. We're trying to maintain some competitive element of surprise, but at the same time, what we learned as we looked at the space and we had both an internal view and we had some external experts look at things, is that it's just not one size fits all. There's some applications that may work wonderfully and spend most of their life in a room temperature environment. There's other applications which really have really high temperatures and there's some other applications that have very low temperatures.

So when we refer to product line, we look at the opportunity to try to explore opportunities in all those segments.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [17]

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Okay, super. On the medical side, you called out a particular exclusive arrangement with a European OEM and you mentioned $4.8 million in business annually through 2022. Can you give us any color? Is that something that's going to ramp from this year forward or you're absolutely looking for $4.8 million this calendar year?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [18]

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That's something that we do on a regular basis. What's the pertinent point on that is, is that like most customers over time, they tend to call their supplier base, and so they'll be working with somebody for a while and everybody tries to make the best value proposition of products and have the best collaborative relationship. But just the economics of the world require that people have to continually look at their suppliers and evaluate do we continue, or do we expand the number of suppliers, or reduce the number of suppliers.

In the medical space, we do see in many cases where our end customers are taking a look at that supplier base and deciding whether or not they expand the number of suppliers or reduce. In many cases, they're reducing. And what's significant about this award was this was an existing customer, very strong customer of ours who is now sort of re-upped its commitment to us and our commitment to them, which is even more important, for the ongoing foreseeable future.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [19]

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So this could actually result in additional products and additional from them that need our batteries besides --

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [20]

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Gary, it's primarily their core business, what they've been doing from this point forward but to me it's more giving us better visibility to a longer-term future. At any customer, this customer, as well as any other customer, one of the reasons we decide to have really strong collaborative relationships with those customers, those OEMs is because there's an opportunity to grow our wallet share. And by developing those relationships, we know where they're headed on a longer-term basis.

So in every single case, and as much as our customers are expecting to grow, there's an opportunity for us to grow not only as they grow their business by improving wallet share.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [21]

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And then Mike, you also called out some work beginning on that significant IDIQ you folks won in the last 12 months, I think earlier this year. Do you expect any revenues to hit this year or is it all going to start next year?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [22]

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Most of that is going to start next year, but in the meantime, Gary, we still continue to get revenue from the legacy products. So that IDIQ was sort of the next phase of that type of product line. It's a little bit different product but in the meantime, we continue to supply our legacy products. So we're excited about that project. It was $21.4 million in the max case. We're starting to see some initial delivery orders for the early testing and validation. We have some first article testing that needs to be done.

So we have delivery orders for those kinds of things that will happen throughout next year but in the meantime, we still continue to get orders and delivery orders on the product. So I would say it's fairly consistent this year and into next year.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [23]

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And lastly with cash being up 50% year-over-year, plus your new expanded line of credit, can you tell us what the thinking is in regard to M&A and perhaps because of your results being so robust and the balance sheet improvement, and the increase in the line, are you seeing or targeting with your advisors larger accretive acquisitions? And are they exclusively in the medical space or are you looking at other industries as well?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [24]

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There's several questions there. I would say that for sure from a capital deployment perspective, our sort of ranking and hierarchy of how we deployed capital, we start with the organic opportunities, new product development, market, sales reach expansion. Then we move to acquisitions and then if there's still capital to be deployed in terms of returning, our success story to shareholders, we've done things like stock buybacks. What we've added this year is the strategic capital investment because we saw an opportunity to exploit some organic revenue growth opportunities.

Relative to specific medical versus non-medical M&A activity, of course, we would be very interested in something medical but it's certainly not limited to medical. Relative to sizes, we love the Accutronics acquisition that we did. It's still performing exceeding expectations. We'd like to do multiple Accutronics or even a smaller number of larger acquisitions.

So I think we have a lot of flexibility. I think we have the capital structure and access to capital to do bigger M&A activity and we're using both internal and external resources to help us with targeting. And it's just a very lengthy, tedious process to go through developing those relationships and identifying targets, and deciding whether or not it makes sense to go to the next step for the formal acquisition.

But I hope that that answers some of your -- several questions that you asked.

A: It did Mike, thank you. So in terms of what you're seeing versus last year, has it -- I guess in terms of the amount of packages you're seeing for those companies that for sale, is that up year-over-year from what you're looking at before?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [25]

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Our activity is definitely up but it's been pretty active the whole time. I know it's sort of frustrating for someone on the outside because we don't talk about things unless we actually close something. But I can ensure you the activity level internally is at a feverish pace. We're pretty selective. We're expanding our view of different opportunities. We're not only looking about acquisitions in our core space and adjacent space, but we're also looking at some vertical integration plays where the combination of our two companies -- the technology of the batteries and the performance level of batteries really make that integrated device even more profitable and more successful in the marketplace.

So I would say we expanded our range of views to include vertical integration activities as well as what we've been looking at historically, but I know it's frustrating that we haven't been able to say more specifics about particular transactions and the timing when they may or may not occur.

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Operator [26]

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(Operator Instructions) And there are no further questions at this time.

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [27]

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Okay. Well, thank you once again everyone for joining us for the Second Quarter 2017 Earnings Call. We look forward to sharing with you our quarterly progress on each quarter's conference call in the future. We'd also like to mention that we have updated through the first half trailing 12 months, the financial information, as well as some other slides in our investor presentation that's on the website. So please check it out.

Thank you everybody and have a great day.

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Operator [28]

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