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Edited Transcript of ULBI earnings conference call or presentation 2-May-19 12:30pm GMT

Q1 2019 Ultralife Corp Earnings Call

Newark May 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Ultralife Corp earnings conference call or presentation Thursday, May 2, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Michael D. Popielec

Ultralife Corporation - CEO, President & Director

* Philip A. Fain

Ultralife Corporation - CFO, 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

* Jody Burfening

Lippert/Heilshorn & Associates, Inc. - MD and Principal

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Presentation

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Operator [1]

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Good day, and welcome to the Ultralife Corporation First Quarter 2019 Earnings Release Call. At this time, for opening remarks and introductions, I'd like to turn the call over to Ms. Jody Burfening. Please go ahead.

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Jody Burfening, Lippert/Heilshorn & Associates, Inc. - MD and Principal [2]

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Thank you, Leann, and good morning, everyone. And thank you for joining us this morning for Ultralife Corporation's earnings conference call for the first quarter of 2019. With us on the call today 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.ultralifecorporation.com, where you'll find the release under News in the Investor Relations sections.

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 reduction in revenues from key customers, uncertain global economic conditions and acceptance of new products on a global basis. The company cautions investors not to place undue reliance on forward-looking statements, which reflect the company's analysis only as of today's date. The company undertakes no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances. Further information on these factors -- these and other factors that could affect Ultralife's financial results is included in Ultralife's filings with the Securities and Exchange Commission, 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 now 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, Jody, and thank you, everyone for joining the call. Today, I'll be discussing 2 topics during my prepared remarks: our Q1 2019 operating performance and the closing of an exciting acquisition that was completed yesterday. I'll start by making some overall comments about our Q1 2019 operating performance, then I'll turn the call over to Phil, who would take you through the detailed financial results. After Phil is finished, I'll provide an update on the progress against our 2019 revenue initiatives, including the acquisition, then open it up for questions.

For the first quarter of 2019, both of our business units experienced year-over-year down quarters in government and defense revenues, which unfavorably impacted our operating results. For the Communication Systems business, where shipments of our Leader Radio ancillary components did start in Q1 2019, it was much later in the first quarter than expected when we spoke to you on last quarter's call. We're currently working closely with our channel partner as we ramp up production of these units, which fall under the $19 million in U.S. Army delivery contracts you will recall we received in October of 2018.

For the Battery & Energy Products business, Q1 2019 revenues were down year-over-year due to timing differences in several of our U.S. government and defense revenue channels as well as noteworthy revenue softness in our China manufacturer 9-volt product line, which remains subject to tariffs. The medical segment continues to be a bright spot in our B&E revenue mix, achieving a double-digit revenue increase in Q1, fully offsetting the 9-volt softness and leading to a 4% increase year-over-year in our overall commercial revenues.

The recent fluctuations in our government and defense revenue underscore our motivation to continue to diversify our end markets, particularly in the commercial area. To that end, building on our success in penetrating the medical market, both organically and through acquisition, we are thrilled about our next acquisition, which takes us into the oil and gas and subsea electrification markets.

In a few minutes, I'll give you further information on our organic revenue initiatives and the strategic rationale for the acquisition. But first, I'd like to ask Ultralife's CFO, Phil Fain, to take you through additional details of the first quarter 2019 financial performance. Phil?

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

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Thank you, Mike, and good morning, everyone. Earlier this morning, we released our first quarter results for the quarter ended March 31, 2018. We also filed our Form 10-Q and Form 8-K with the SEC this morning and have updated our investor presentation in the Ultralife website. I would like to -- to thank all those that help make this happen. We also announced the acquisition of Southwest Electronic Energy Corporation. I will go over the financial and accounting implications of this transaction after my review of the first quarter results.

For the first quarter, consolidated revenues totaled $18.9 million, representing a $4.2 million or 18.2% decrease from the $23.1 million reported for the first quarter of 2018. Consolidated revenues were largely impacted by delays experienced by our Communication Systems business in the start-up of production and shipment of amplifiers to support the U.S. Army's Network Modernization initiatives under the $19.2 million delivery orders announced in October 2018. The resulting lower sales cascade through our first quarter financial results and other reported metrics. The commercial to government and defense split was 53-47 versus 42-58 for the year earlier period, reflecting 4% revenue growth in the commercial sector and lower year-over-year sales for government and defense for both businesses.

Revenues from our Battery & Energy Products segment were $16 million, a decrease of $1.2 million or 7.1%, with gains in commercial revenues offset by lower government and defense sales. Commercial sales of $10 million grew $0.4 million over the prior year, driven primarily by a 10.4% increase in medical sales, partially offset by lower 9-volt sales. Government and defense sales of $6 million decreased $1.5 million from the 2018 period due primarily to timing of shipments to the U.S. Department of Defense and non-U. S. defense contractors. As a result, the Battery & Energy Product sales split between commercial and government and defense was 63-37 compared to the 56-44 for the 2018 period. The geographic distribution of our Battery & Energy Products sales was a domestic-to-international split of 47-53 compared to 55-45 for the 2018 first quarter, reflecting higher international demand for our medical products.

Revenues from our Communications Systems segment were $2.9 million, a decrease of $2.9 million from last year. The decline was due to delays in the start-up production and shipments of amplifiers to support the U.S. Army's delivery orders. First quarter revenues for 2018 included shipments of Vehicle Amplifier Adaptors for the U.S. Army's Special Forces Assistance Brigades under a contract awarded in December 2017 and shipments of power supplies to a large global defense prime.

Our consolidated gross profit was $5.1 million compared to $7.3 million for the 2018 period. As a percentage of total revenues, consolidated gross margin was 26.9% versus 31.6% for last year's first quarter. Gross profit for our Battery & Energy Products business decreased 12.4% from $5 million to $4.4 million. Gross margin was 27.6%, a decrease of 160 basis points from 29.2% reported last year due to unfavorable sales mix. For our Communication Systems segment, gross profit was $0.7 million compared to $2.3 million for the year earlier period. Gross margin was 23.4% compared to 38.4%, primarily due to costs incurred to commence production of amplifiers under the orders received in October 2018.

Operating expenses totaled $4.5 million compared to $4.9 million last year, primarily reflecting continued tight control over discretionary spending. As a percentage of revenues, operating expenses represented 24% compared to 21.4% reported for the first quarter of 2018. Operating income for the first quarter of 2019 was $0.5 million compared to $2.4 million for the 2018 period, and operating margin was 2.9% for the 2019 period versus 10.2% last year. First quarter noncash operating expenses, including depreciation, intangible asset amortization and stock compensation expenses, amounted to $0.8 million compared to $0.7 million for the year earlier period. This brings us to adjusted EBITDA, defined as EBITDA including noncash stock-based compensation expense, of $1.2 million or 6.4% of sales versus $3 million or 12.9% for the first quarter of 2018.

Other expenses, primarily comprised of interest expense and foreign currency transactions, decreased from $133,000 to $58,000 primarily due to the strengthening of the U.S. dollar to pound sterling over the prior year. Our tax provision for the first quarter was $41,000 compared to $55,000 for the 2018 period.

Net income for the first quarter of 2019 was $0.4 million or $0.03 per share compared to net income of $2.2 million or $0.14 per share for the same period last year. Our cash on hand of $21.2 million decreased $4.7 million from year-end, reflecting a $5.1 million increase in inventory, primarily to support the fulfillment of our Communications Systems' U.S. Army delivery orders; the repurchase of 227,300 shares during the first quarter, bringing the total shares repurchased to 372,774 since our Board of Directors authorized a 2.5 million share repurchase program effective November 1; and capital expenditures to support our CR123A and thionyl chloride strategic projects. Our strong liquidity and access to capital affords us flexibility in making capital allocation decisions. To that end, in addition to supporting investments in new product development, capital expenditures and our share repurchase program, we funded our acquisition of Southwest Electronic Energy Corporation through a combination of cash on hand and a draw-down of our revolving credit facility. We have also completed an amendment of our credit agreement to include a 5-year $8 million term loan with no prepayment penalties and extended the maturity 2 years, through May 2022.

With respect to the acquisition, we will record the purchase accounting adjustments and the direct cost related to the transaction in the second quarter in accordance with GAAP. Taking into account the acquisition-related expenses and the interest expense, we expect the transaction will be accretive to EPS by the second quarter of 2020.

In summary, the actions we are taking to drive profitable growth remain our highest priority. Our intent remains on driving volume and sales through further organic and synergistic initiatives, supplemented with accretive M&A 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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Thank you, Phil. For 2019, we continue to be focused on increasing our revenue growth opportunity set through diversification, an expansion of market and sales reach, new product development and strategic CapEx, and accretive acquisitions.

I'm very pleased to announce that yesterday, the Battery & Energy Products business completed the acquisition of Southwest Electronic Energy Corporation, based in Missouri City, Texas. This bolt-on acquisition further supports our diversification into the commercial space by providing entry to the oil and gas exploration and production and subsea electrification markets, which are largely currently unserved by Ultralife. Another key benefit includes obtaining a highly valuable technical team of battery pack and charger system engineers and technicians that we are very excited to add to our new product development-based revenue growth initiatives in our commercial end markets, particularly for smart metering, asset tracking and other industrial applications.

The acquisition fits well with our core in that it's focused on mission-critical niche applications; has competitive differentiation based on quality and reliability; long-term, high-value proposition customer relationships; and a similar well-run business model. And although the business is cyclical, we expect it to be at least somewhat skewed from the demand cycle of our existing U.S. government and defense market.

To give you an idea of what this acquisition will mean to us in terms of potential revenue contribution, for the total year 2018, revenues of Southwest Electronic Energy were approximately $28 million, which would represent an addition of approximately 39% to B&E's annual revenues or 32% on a total company basis. And from a percentage of total revenue mix perspective, it would represent approximately 24% of total company revenues. We are kicking off day 1 of our 100-day integration plan today with the team in Texas, where we plan for them to remain, using a similar approach to what was done for our successful Accutronics acquisition. Lastly, we expect Southwest Electronic Energy's earnings contribution to be EPS accretive within the first 12 months.

Looking further into the Battery & Energy Products business. Market and sales reach expansion has been about diversifying more into the global commercial markets and international government and defense markets to lessen the volatility on our revenues as a result of lumpiness in U.S. government and defense market demand. For the first quarter of 2019, commercial and international government and defense revenues represented 67% of our total B&E sales.

Looking inside our commercial revenue at our medical sales. For Q1 2019, global medical sales represented 34% of the total B&E sales and were up 10% year-over-year. B&E total international sales were up 8% and largely medical-driven. Key medical device battery and charger product shipments were made in Q1 2019 for applications including breathing devices, medical carts, infusion pumps, automated external defibrillators, digital X-ray and surgical robots. New delivery orders in the quarter from 4 long-standing customers under blanket and/or multiyear agreements totaled over $4.3 million, providing good ongoing revenue from these customers.

In addition to medical, we also continue to pursue other targeted commercial end markets, including industrial equipment, safety and security, metering and sensors, asset tracking, in-transport entertainment, drones and UAVs, and the Internet of Things. Several of these projects include thin-cell product sales from our China facility, which in Q1 2019 were up more than 4x the prior year's first quarter.

Lastly, in B&E's U.S. government and defense business, Q1 2019 revenues were down 21% year-over-year driven by project timing in essentially the same 3 customer channels: the DOD, OEM Primes and energy storage, who just last quarter capped off strong quarterly and total year year-over-year revenue increases, again demonstrating the demand variability in this market segment. These shipments in Q1 2019 included a wide range of batteries for tactical communications to the Department of Defense and various OEM Primes. We also received several new orders and submitted several large proposals in responses to RFQs from our U.S. government and defense customers.

Lastly, we have begun the first article testing and the production readiness for the next generation 5390 primary batteries, with the new CFX blend 5790 battery coming up next, getting us closer to being ready to receive delivery orders against the approximately $72 million in multiyear DLA IDIQ awards received in 2017.

Regarding new product development revenue for B&E, in Q1 2019, revenue from products introduced less than or equal to 3 years ago was 12% of total B&E revenue. During the first quarter, activity continued on a wide range of products to feed the new product development funnel, such as a new military communications backup battery; a nonmilitary communications battery for the public safety market; an industrial valve application battery; the development of our smart U1 product line, including a new voltage variant; battery solutions for medical digital imaging applications; cardiac assist device batteries; and [MGP] improvements to our thionyl chloride cell product line, targeting industrial, metering and IoT applications for our global customer base. We continue to provide value and strengthen long-term relationships by closely collaborating with key customers in the development of new products, developing existing products through multigenerational product plans and by helping our customers expand their products' competitive advantage.

Lastly, with strategic CapEx, we continue to attack on 2 fronts: the development and manufacturing of the new products that will serve Internet of Things applications, and the rapidly-growing wireless devices market as well as the next-generation 3-volt smoke alarms, asset tracking devices and metering. At our Newark, New York, facility, we have now successfully completed UN transportation testing for our U.S. product produced, allowing us to begin shipment of samples and low-volume product in April. The automation equipment for use in high-volume production of a premium 3-volt primary battery product line under the previously announced $4.3 million capital investment continued to arrive over the course of Q1, with the installation of the integrated cell assembly for our dry run starting in April and the debug and commissioning activities expected to continue through the first half of 2019. These new products will provide customers with world-class product performance, safety and a competitive price/value proposition as well as the supply chain proximity of a U.S.-manufactured product.

In China, our new locally manufactured lithium manganese dioxide 3-volt cell samples have been supplied to customers, and we're ramping to full production volumes. Our goal is to produce the highest value proposition, best quality and safest products, in which every one of our global locations that best serves the supply chain of our end markets and OEM customers.

Regarding Communication Systems, in Q1 2019, new product development revenue from products less than or equal to 3 years old represented approximately 68% of Communication Systems revenues. Shipments in the quarter included 20-watt amplifiers, 50-watt amplifiers as well as initial IDIQ contract deliveries for nonstandard commercial vehicle communication kits and mounted power amplifier systems in support of the U.S. Army's Network Modernization initiatives. The initial deliveries in Q1 2019 for the U.S. Army's Network Modernization Leader Radio program were short of anticipated mix and volume targets due to integration, supply chain and testing challenge and delays, and thus, did not meet the expected full rate production in Q1. However, as these obstacles resolved, as of the end of April, we have completed more production units in the first month of Q2 than we did in all of Q1 2019, and as a result, anticipate a strong increase in shipments in Q2 versus Q1.

The continued focus of military spending on modernization provides solid opportunities for Communication Systems products overall, and we remain well positioned for new and follow-on program awards for the U.S. Army's Handheld, Manpack and Small Form Fit program, focused on the Leader handheld radio. These systems, when integrated with a specific handheld radio from an OEM defense partner, provide the soldier with highly-improved communication range, enhanced digital voice and data connectivity and improved operational flexibility and readiness.

New product development initiatives continue to drive a significant portion of Communication Systems revenue over multiple years, and we continue to engage OEMs globally to identify emerging capability requirements to expand our product reach into new markets. We remain driven to increase new product development capacity for multiple, simultaneous major programs and achieving developmental and production innovation. We will continue building technically superior products that enhance operational readiness and effectiveness of the latest radio programs and solutions operated by dismounted war fighters and installed on ground mobility, maritime and air platforms.

In closing, for the first quarter of 2019, although we were disappointed that meaningful production under the recent large Communication Systems contracts for mounted amplifiers and Vehicle Amplifier Adapters started later than expected, we are aggressively working to get back on track in the second quarter.

As noted last quarter, Communication Systems started the year with a total value of in-hand present-year shippable backlog almost 30% higher than their total 2018 revenue, and that backlog is still expected to ship in 2019. As we ship units against the current contracts, we will continue pursuing other new product development-driven integrated Communication Systems program opportunities. As for the Battery & Energy Products business in Q1, we are delighted to start the new year with the acquisition of Southwest Electronic Energy, not only for the new customers and revenue opportunities it will bring but also for the strong team and technical resources that will become part of and strengthen our global team.

At B&E, we are also looking for meaningful revenue capture from completions throughout the year of several maturing new products and programs, including the new 3-volt cell, a world-class ER product line, smart U1 batteries, multiple medical market expansion opportunities, the government and defense 5390 and 5790 primary batteries, OEM STC and Leader radio and public safety radio battery packs, and numerous 2590 rechargeable battery prospects.

As a company, we are growing the revenue opportunities created by continuing investment in market and sales reach expansion, new product development and strategic CapEx and continue to focus on prospect development for future revenue growth from the medical and industrial markets, Internet of Things market, U.S. government and defense market, and now also the oil and gas and subsea electrification markets. We remain committed to our target of increasing revenue each quarter year-over-year with leveraged earnings, and we fully expect to deliver a year of profitable growth in 2019.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our first question from Gary Siperstein with Eliot Rose Wealth Management.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [2]

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So Mike, just to be clear, so by you reiterating the backlog and talking about these delays, we didn't lose any customers out of their frustration because we had these delays. So everything is still intact, it's just that they were pushed out a little bit, is that correct?

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

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That's correct.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [4]

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Okay. And then last quarter, as you said in your remarks, you had led us to believe that for the $19.2 million, and I think those are VIPER orders, that it was -- half would be in the first quarter, half would be in the second. So -- and you had originally thought some of that would ship in the fourth quarter of last year. And then you had mentioned there were some things on Ultralife's end that you wanted to improve on and that caused the delay. So since that conference call was in the middle of the first quarter, so what changed? Was the customer pushback when they want the delivery? Or did it take you longer to fix the problem that flipped it from Q4 to Q1? What changed after that when you were leading us to believe it would happen in Q1?

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

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You are correct. I did say that, and that's why I made the direct comments addressing that during my prepared remarks. Just the continued complexity of really doing 3 new simultaneous amplifier designs all at once, a significant amount, and I'll say actually a Herculean effort by all the project teams involved, our own project teams as well as our OEM partner's project team and some of their partners as well in trying to coordinate the overall design of a very complicated configuration. And just the timing that it takes and the iterative process to go through and complete that design and complete this complex communication between 3 different parties from a standpoint of the equipment, any changes that are made during the fine-tuning or testing that would trigger a new ordering of components and lead times associated with that, those things together that -- I certainly don't want to burden you with all the details of how we run the business on a day-to-day basis. But on an aggregate basis, they led us to where we are today. And so I wanted to make sure it was very clear that it was different than what we thought earlier. Really had nothing to do with the level of effort or amount of hours that people were putting forth, but wanted to be truthful and honest we stood. We didn't lose any customers. We still intend to ship the entire amount that's under contract, and that's where we are.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [6]

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Okay. So you mentioned that there was some [resolvement] in the issues with the amplifiers and that you really ramped up the shipments in April so that they were bigger than the full first quarter. So does that mean -- is that both on VIPER and the Leader orders? Or is it just on the $19.2 million VIPER?

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

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Just to be clear, we're sort of mixing apples and oranges a little bit. But let's refer to the product as the current $19.2 million contract as there's 2 different types of mounted power amplifiers, and then there is 1 VIPER-esque, meaning that it's an integrated solution with amplifier, power supply, L-band capability for the handheld radio that we referred to as VIPER when it came out for that initial contract with the U.S. Army. Right now, we're just referring to the product line as the vehicle adapter amplifier. So what we're talking about here is the mounted power amplifiers are 2 separate amplifiers, the Vehicle Amplifier Adapter is another amplifier-type system, and doing all 3 of these all at the same time and making sure they all communicate with each other.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [8]

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Okay. So again, I just want to make sure I'm not confused. So the fact that you shipped in April a larger amount than the first 3 months, that's -- was that all on the $19.2 million? Or that was various contracts?

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

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That was all the $19.2 million.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [10]

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Okay. So that's up and running. And despite the complexities, the customer in April was happy with -- the amplifier's working and so forth?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [11]

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Absolutely.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [12]

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Okay. And how much of that $19.2 million shipped in Q1, if any?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [13]

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We don't really provide that level of detail, Gary, but just the very beginning part of it.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [14]

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Okay. So the majority of it will go over the next 3 quarters?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [15]

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Correct.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [16]

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Okay. And then on -- you mentioned timing with battery orders down, and I think you called out that 9-volt was weak in China. Does the weakness have anything to do with the transition in some cases to the 3-volt? Or again, is that apples and oranges? It's just the timing issue on 9-volt, and 3-volt is for different products, different uses?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [17]

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I think you're correct. I mean there -- it wasn't just as a result of tariffs and things like that, and we've said it over last couple of quarters. We said the contribution was the transition from 9-volt to 3-volt. We said that there was a lot of people that had a liquid supply chain on their own. So when the tariffs came in place, we thought they're buying pure products as they bled off their internal inventory, and then the outright number of people that perhaps were buying less because of the increase in the tariff. At this point, we believe, given some of the customers have gone to very low quantities, that the tariff is having a pretty substantial impact on the demand.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [18]

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Okay. Got you. And I don't know if you had the chance to read it again, but Harris came out with their earnings yesterday and had the conference call. And I thought it was interesting that they specifically talked about how significant the tactical radio business was for DOD. And they've said the revenue was up 55% in the quarter, and they talked about going-forward budgets where it'll be over $1 billion larger over the next 5 years to $7.3 billion and -- on all modernization and tactical stuff. And they specifically called out LRIP orders on the HMS manpack, the 2-channel radio and how that is going to go into production. And then they finally said the Marines, separate from the Army, they got initial orders for multichannel manpacks, et cetera. And then they talked about international countries as well modernizing.

So I know you don't talk about specific customers, but I think part of that, at least the Leader orders, are part of that multibillion-dollar modernization on the handheld that Harris and Thales are the major suppliers, and I know we supply batteries to both of them. So that was a little more commentary from Harris than on any other call regarding some of these future products and how they're ramping significantly and how the budgets are growing very significantly. Is that what you're starting to hear as well? I know it didn't come through in Q1. But are you getting some color from your customers on that stuff?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [19]

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I think we've been bullish on it for some time now in terms of the overall expenditure levels, without commenting specifically about either of the 2 vendors that you mentioned, and were involved in that program. But I think it bodes well. We're providing ancillary equipment to the radio manufacturers themselves. So without large demand for overall radio contracts, there's not a lot of need for our ancillary equipment. So we're very optimistic about it, and we'll try to serve our OEM partners as best as we possibly can for technical and performance satisfaction, and very optimistic of where this will go. But we will experience lumpiness from time to time in the supply chain, and we saw that in Q1.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [20]

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Okay. And Harris also mentioned in that same commentary that they were expecting another LRIP on both the manpack and the 2-channel this summer for the Army. And then it should soon, after that testing, go into full production. Is that the sort of schedule you're hearing? And therefore, at some point later this year or into next year, 2020, that it's scheduled to go into full production?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [21]

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I'd rather not comment on somebody else's view of the outlook, but if that's true, and it turns out to true, then I think that's good for all of us.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [22]

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Okay. Great. So none of that's changed and that's growing and that's where we participate in the future. Going back to the acquisition now. So you called out that it was paid for with cash and utilization of part of the line of credit. Explain to me why the $8 million term loan? In other words, my initial understanding on the line of credit, it was for $30 million or $35 million and there was a balloon aspect for another $15 million or $20 million. Is that still in place, minus whatever you use? Or is the line of credit gone and it's replaced by this term loan?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [23]

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Gary, we have that very thoroughly explained in the 8-K that was issued at 7 a.m. this morning, but I'll recap that. The revolver remains in place. If you recall, the revolver is $30 million, plus a $20 million accordion. So what we've done is, we have worked through the first amendment of that revolving credit agreement. And the first amendment not only extends the life of the agreement for 2 years, it also puts in place an $8 million term loan as part of the $30 million, plus $20 million, in addition to, with no prepayment penalties whatsoever.

And the point I want to emphasize is, we've been working very hard to find an ideal acquisition for us. It doesn't mean -- as a clear signal, it does not mean that it's a one-and-done proposition. Right after we close the acquisition, we have our eyes out on various other projects. You know very well what our capital allocation strategy is. It's new products, it's the strategic CapEx, of course, the share repurchase program and it's all about profitable growth, which includes both organic and strategic M&A. So that just fortifies our desire to move forward on other projects, following the same criteria that we have in place.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [24]

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Okay. Super. That's what I'd thought and that's anticipating my next question, which was I think you guys originally, after Accutronics, we're talking about -- since there's almost the same amount of work involved in a $20 million acquisition as there is in a $60 million or $70 million acquisition, the goal was to find something a little more transformative and bigger. So Southwest Electronic, even though it was bigger than Accutronics, to me doesn't satisfy that transformative adjective. However, therefore, I'm wondering, was it just too good to pass up, and you're still looking for the transformative? As you just mentioned, you're back on the hunt again, and it just hasn't shown up yet, the transformative one, but this one was just too good to look up -- to give up? Is that close to true?

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

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I don't know if I'd look at it that way. I look at it as a very attractive end market that's very consistent with what we do. And it happened to be that this company first showed up on our list over 4 years ago. And so you have a number of discussions going on at any time. And as economic conditions improved and the oil and gas market improved, the owner felt more interested in talking about it. We've been in discussions with them over the last year. We've been in discussions with lots of people over the last couple of years. And so it wasn't just the specific goal of it being x amount of revenue. We certainly like to try to continue to move up the chain and increase the size of our acquisitions, but getting us into an extremely attractive end market for our product line, and the more we got into it and looked at the company, the more we liked it. It was just a great fit for us, and we're very excited about going through the smooth integration.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [26]

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Did all of the key owners stay? Or did all of them go? What's the breakdown on the key management and ownership of the company, the top employees?

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

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Well, we just closed it yesterday. So we're hoping they're still there today. No, seriously, we would expect that the overall majority of the management team and the workforce would stay along with us.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [28]

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Okay. Super. Can you guys tell me over the last 5 years, what their CAGR was?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [29]

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Yes. You're going to see. We have 70 days, which takes it to July 10, to issue an amendment to the 8-K, which includes all the required SEC disclosures. And most of your financial questions will -- the investment community's financial questions will be answered in that filing.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [30]

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Okay. But you've been -- obviously, you're satisfied with their history. And I assume they're EBITDA positive. Can you at least comment on that?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [31]

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Yes. One of -- certainly in -- you -- I think we shared with the investment community what our criteria are, both the strategic benefits and the financial parameters, and that's certainly one of them.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [32]

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Okay. And Phil, you mentioned you bought 227,000 shares back in Q1. What was -- do you have the average price that was paid? And can you also tell me what the highest price per share was paid?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [33]

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Yes. You'll see all that, Gary, in our Form 10-Q, which again was filed with the SEC at 7 a.m. this morning. And I'll save you the time for working the math. You'll see it's $7.20. It's disclosed in the 10-Q.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [34]

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Okay. What was the highest price you paid? That's the average, right?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [35]

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That was the average. It was pretty close to that band.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [36]

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Okay. And the buyback is still open and available?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [37]

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Yes.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [38]

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Okay. And then, Mike, on the -- you called out the samples in April for 3-volt, was that -- just for my clarity, was that exclusively for IoT? Or was it for everything, smoke detectors, meters, robotics?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [39]

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That test was passed, and there's 2 different pieces of it. In the U.S., we passed the UN test, and so we are in a position to start shipping samples to a plethora of different end markets, including IoT. In the case of China, we've been already shipping there a little bit. A large part of those are associated with smoke detectors as well as other industrial-type applications. So it's not just exclusive to IoT at this point.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [40]

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Okay. Got you. And so have we been shipping any 3-volts prior to this? Or is this the first certification and then the first production orders?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [41]

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We've had a 3-volt product for some time and had a little bit different construction. And it was sort of a technician-replaceable product, meaning that it just wasn't something you'd see in an aftermarket-type application. And so this is a slight modification to meet really what the current market requirements are for our product as well as making sure that we're just a little bit better than the competition in terms of our performance.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [42]

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Okay. Got you. And last question. So you said in the script, you still expect to grow earnings this year. So we did $0.40 non-GAAP last year. With the variability quarter-to-quarter, I know it can be all over the place as the first quarter demonstrated, but the implication is the company should average $0.13 a quarter for the next 3 to beat what we did last year. So is that sort of the expectation? And do you expect it to -- I know the quarters can be different. So is the ramp, hypothetically, could it be -- do you expect it to be equal roughly by quarter? Or could it be like $0.10, $0.15, $0.20 and ramp right into the fourth quarter? Or do you think you'll get to a steady state in this Q2? So it'll be similar Q3s and Q4s?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [43]

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Phil?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [44]

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Sure, sure. As you know, we don't provide quantitative guidance, but I think if you go back and think about or reread the comment that Mike made, we'll certainly stand by that. Our goal is, as Mike said, to have another year of profitable growth in 2019. How we get there, there's a lot of variables that go into that. We would love to have evenly weighted quarters throughout the end of the year, but life usually doesn't work that way. So we are prepared to get there, whatever the configuration is to make that happen.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [45]

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Understood. But we should at least, everything else being equal, do close to $0.40 for the next 3 quarters in order to beat last year. All right. Thanks. Sorry for taking up all your time with all these questions I'll give someone else a chance.

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [46]

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They're good questions.

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [47]

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Thank you, Gary.

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Operator [48]

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(Operator Instructions) And it appears that there are no further questions in the queue at this time. I would now like to turn the conference back over to Michael Popielec for any additional or closing remarks.

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [49]

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Great. Well, thank you once again for joining us for our first quarter 2019 earnings call. We look forward to sharing with you our quarterly progress in each quarter's conference call in the future. As Phil mentioned, I'd also like to note that we did have an updated investor presentation on our website. So please check that out as well as all the other documents and filings that were made today. Have a great day, everyone.

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Operator [50]

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And that does conclude today's conference. Thank you for your participation. You may now disconnect.