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Edited Transcript of ULBI earnings conference call or presentation 1-Aug-19 12:30pm GMT

Q2 2019 Ultralife Corp Earnings Call

Newark Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Ultralife Corp earnings conference call or presentation Thursday, August 1, 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 this Ultralife Corporation's Second Quarter 2019 Earnings Release Conference Call. At this time, I'll like to turn the conference over to 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, Audra, and good morning, everyone. And thank you for joining us this morning for Ultralife Corporation's earnings conference call for the second 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 section.

Before turning the call over to management, I would like to remind everyone that some statements made during this conference call will contain forward-looking statements based on current expectations. Actual results could differ materially from those projected as a result of various risks and uncertainties. These include potential 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 and other factors that could affect Ultralife's financial results is included in company'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 and that differ from GAAP. These non-GAAP measures should be considered supplemental to corresponding GAAP figures.

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

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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 start by making some brief overall comments about our Q2 2019 operating performance. After which I'll turn the call over to Phil, who will take you through the detailed financial results. When Phil is finished, I'll provide an update on the progress against our 2019 revenue initiatives, including the acquisition of Southwest Electronic Energy Corporation, which we refer to as SWE, then open it up for questions.

Looking at our second quarter results on an organic basis, we were pleased to deliver an 8% increase in revenue and a 70% increase in leveraged operating profit. The revenue increase was driven primarily by Communication Systems and shipments of mounted power amplifiers to our channel partner under existing contracts for the U.S. Army's network monetization initiatives as well as shipments for the first delivery order under the $10 million Universal Vehicle Adapter IDIQ announced in June.

Our Battery & Energy Products core business revenues were down from a year ago. Due to prior year large shipments of 5390s to DOA not recurring this quarter, and continued softness in our China manufactured tariff impacted 9-volt product line, boosted by 2 months contribution from SWE, total company revenue increased 29% year-over-year on a reported basis.

In a few minutes, I'll give you further information on our revenue growth initiatives. But first, I'd like to ask Ultralife's CFO Phil Fain to take you through additional details of the second 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 second quarter results for the quarter ended June 30, 2019. We also filed our Form 10-Q and Form 8-K with the SEC and have updated our investor presentation in the Ultralife website. I would like to thank all those who helped make this possible.

Our second quarter includes SWE's operating results for May and June, along with the purchase accounting adjustments and direct costs related to the acquisition. As I go through my prepared remarks, I will point out the impact of the acquisition on various line items and earnings per share.

For the second quarter, consolidated revenues totaled $29.4 million, representing a $6.5 million or 28.6% increase over the $22.9 million reported for the second quarter of 2018. Overall, commercial sales increased 46.8% and government and defense sales increased 13.8% over the 2018 period.

Revenues from our Battery & Energy Products segment were $20.3 million, an increase of $2.5 million or 13.9% over last year. The year-over-year increase was attributable to the $4.8 million revenue contribution from SWE, which more than offset lower government and defense revenue associated with the large 5390 battery order and higher 9-volt sales in the second quarter of 2018. Including SWE, the sales split between commercial and government defense was 74%-26% compared to 58%-42% for the 2018 period, and the domestic to international split was 51%-49% compared to 60%-40% for the 2018 second quarter, reflecting higher international demand for our medical products.

Revenues from our Communication Systems segment were $9.1 million, an increase of $4.1 million or 80.7% over last year. This increase is primarily attributable to shipments of mounted power amplifiers to support the U.S. Army's network modernization, and other initiatives under the delivery orders announced in October 2018, and shipments of Universal Vehicle Adapters under an IDIQ contract with the Naval Air Warfare Center announced in June 2019. On a consolidated basis, the commercial, the governments and defense sales split was 51%-49% versus 45%-55% for the year earlier period, reflecting both our acquisition of SWE and the 81% year-over-year increase in Communication Systems sales.

Our consolidated gross profit was $8.9 million compared to $6.6 million for the 2018 period. As a percentage of total revenues, consolidated gross margin was 30.2% versus 28.6% for last year's second quarter, an increase of 160 basis points. This increase is net of 70 basis points of purchase accounting adjustments relating to the acquisition of SWE. In accordance with generally accepted accounting principles, we wrote up SWE's beginning inventory to fair market value, thereby eliminating a significant portion of the gross profit from the sale of this inventory in the second quarter.

Gross profit for our Battery & Energy Products business increased 14.8% from $4.9 million to $5.7 million. Gross margin was 27.9%, an increase of 30 basis points from 27.6% reported last year due to favorable sales mix. Excluding the impact of the purchase accounting adjustments, the gross margin would have been 28.9% for the 2019 second quarter.

For our Communication Systems segment, gross profit was $3.2 million, an increase of $1.6 million or 97.7% compared to $1.6 million for the year earlier period. Gross margin was 35.3% compared to 32.3%, an increase of 300 basis points due to favorable sales mix.

Operating expenses totaled $5.8 million compared to $4.9 million last year, an increase of $0.9 million or 18.4%. The increase was fully attributable to SWE's operating expenses of $1.1 million, including $0.2 million of one-time direct acquisition costs reflecting customary legal, audit and due diligence expenses. Excluding SWE, operating expenses decreased $0.3 million or 5.1%, due primarily to lower corporate expenses. As a percentage of revenue, operating expenses were 19.8% compared to 21.5% for the year-earlier period.

Operating income for the second quarter of 2019, inclusive of $0.4 million of purchase accounting adjustments and direct acquisition costs, was $3.0 million compared to $1.6 million for the 2018 period, representing an increase of 86.4%. And operating margin was 10.3% for the 2019 period, versus 7.1% last year.

Adjusted EBITDA, defined as EBITDA including noncash stock-based compensation expense, was $4.1 million or 13.9% -- compensation expense was $4.1 million or 13.9% of sales, an increase of 61% over the $2.5 million or 11.1% for the second quarter of 2018.

Our tax provision for the second quarter was $0.7 million compared to $0.1 million for the 2018 period. As a result of reversing the valuation allowance on our U.S. deferred tax assets at year-end 2018, in accordance with generally accepted accounting principles, we utilized a 21% tax rate on the U.S. portion of net income, resulting in an overall tax rate of 22.8% to determine our tax provision for the second quarter of 2019. This compared to an effective tax rate of 4.5% for the year-earlier quarter. We expect that our deferred tax assets will offset U.S. taxes for the foreseeable future and that a cash-based effective rate for the 2019 second quarter would be approximately 1.2%.

Including the nonrecurring acquisition adjustments and expenses amounting to $0.4 million equivalent to $0.02 per share and the 22.8% effective tax rate, net income was $2.3 million or $0.14 per share compared to net income of $1.6 million or $0.10 per share for the second quarter of 2018. Net of the adjustments and utilizing the U.S. statutory tax rate, SWE was accretive by approximately $0.01 per share.

During the Q4 2018 investors call, I stated that I would present 2019 EPS on an adjusted basis to reflect actual taxes to be paid, while ensuring a proper year-over-year comparison. Excluding the provision for noncash U.S. taxes expected to be fully offset by our net operating loss carryforwards and other tax credits, adjusted EPS was $0.18 per share for the second quarter of 2019, representing an 80% increase over the comparable $0.10 per share reported last year.

The company's liquidity remains solid with cash on hand of $6.8 million, working capital of $48.3 million and a current ratio of 3.4. We continue to carefully manage our cash and financing availability in a balanced fashion. The acquisition of SWE, CapEx to support our 3-volt and thionyl chloride strategic projects, increasing inventory to fulfill our backlog and share repurchases. This balanced approach will continue.

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 release 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 revenue through diversification and expansion of markets and sales reach, new product development and strategic CapEx and accretive acquisitions.

Regarding the recent acquisition of SWE, the initial 100-day functional integration plans are in full execution mode with no negative surprises so far. The acquisition was slightly accretive to Q2 earnings. So we remain on-track for the acquisition's earning contribution to be EPS accretive for the first 12 months. We're very excited about the SWE acquisition as it is another step in diversifying our end markets to not only grow revenue, but to also mitigate the lumpiness and unpredictability of our U.S. Government/Defense revenue streams.

SWE provides us an entry to new revenue opportunities in oil and gas, exploration and production, and subsea electrification. Markets largely currently unserved by Ultralife. These markets possess similar attributes to our core business in that they involve mission-critical niche applications with competitive differentiation based on quality and reliability and long-term, high-value proposition customer relationships.

And most importantly, we're expanding our overall technical and new product development capability by the addition of SWE's highly valuable and unique technical team of battery pack and charger system engineers and technicians. We look forward to their contributions to our efforts to pursue additional revenue growth opportunities in our existing commercial end markets.

Stepping back to look more broadly at the Battery & Energy Products business diversification and available market expansion progress, we've been using the global commercial and international Government/Defense market revenue mix as an indicator of diversification from the U.S. Government/Defense market historically our strongest yet lumpiest market.

We're now including SWE, the Q2 2019 commercial and international Government/Defense revenues represented 77% of total B&E sales. [Revealing] medical revenues in Q2 2019 global medical sales represented 27% of total B&E sales and we're just under last year due to softness in our Accutronics business not fully offset by high single-digit growth in the remainder of our medical business.

Key medical device battery and charger products shipments were made in Q2 2019 for applications including breathing devices, medical carts, infusion pumps, digital X-ray and surgical robots. New delivery orders continue against existing customer blanket and/or multiyear agreements and in Q2 2019 totaled over $3 million.

In addition to medical, we're also targeting other commercial end markets, such as industrial equipment, safety and security, metering and sensors, and asset tracking. Some specific transactions in Q2 2019 included a $2.6 million purchase order for our China legacy thionyl chloride product for the toll pass market and an international Government/Defense PO for just under $1 million for our global prime for our Land Warrior batteries.

In B&E's U.S. Government/Defense business key shipments and follow-on orders in Q2 2019 included the usual range of batteries for tactical communications to DOD and various OEM primes. We also received a new contract from a major global OEM for nonmilitary communications batteries for the public safety market, which are currently being produced by another manufacturer.

And finally, in cooperation with the DOD, we continue the lengthy first article testing and production readiness preparation process underway for the next generation 5390 primary batteries and the new CFX blend 5790 battery as part of the approximately $72 million in multiyear DLA IDIQ awards received in 2017.

Regarding B&E new product development, during the second quarter activity continued across numerous projects including a new military communications back-up battery, our next-generation ruggedized large format modular energy storage battery. And in China our thionyl chloride saw product line improvements, targeting global industrial, metering and IoT applications. We also continue to move forward on 2 B&E strategic CapEx projects focused on the development and manufacturing of new products that will serve the rapidly growing IoT wireless devices market, next-generation 3-volt smoke alarms, asset tracking devices and metering.

At our Newark, New York facility, low volume production of our new premium 3-volt product is now underway and in Q2 we began providing samples for qualification testing to customers, while the final commissioning and fine tuning of the automated equipment continued throughout the second quarter. 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 soft samples continued to be supplied to customers for testing and we're ramping to full production volumes. Although we're early in the customer qualification and testing processes, we're encouraged by the initial interest in the new 3-volt products and are seeing individual customer annual demand potential range anywhere from the thousands to millions of units per year depending on the device and application.

Regarding communication systems, in Q2 2019, new product development revenue from less than or equal to 3 years old represented approximately 91% of comp systems revenues. The IDIQ award at the end of the quarter for our universal vehicle adaptors with an immediate delivery order for $1.4 million from the Navy Air Warfare Center Aircraft Division was quickly supported with initial shipments -- quickly supported with initial shipments with the remainder to be completed in early Q3.

Other key shipments in the second quarter included mounted power amplifier systems in support of the U.S. Army's Network Modernization initiatives and follow on deliveries for the nonstandard commercial vehicle communications kits.

Funding for major radio programs continues with operational testing and evaluation of the current systems ongoing in Q3. Follow-on program awards for the U.S. Army's Handheld, Manpack and small Form-fit program focused on a leader handheld radio are anticipated later in 2019 and into 2020. In addition, multigenerational product planning engineering activity is nearly complete on a lightweight power supply, that would support both 1-channel and 2-channel Manpack radios.

Comm. Systems is well positioned to support future requirements in these existing programs and is also pursuing diversification into other new opportunities and customers as an integrator, a C4ISR support equipment for the military community.

Given that strategically focus on radio programs has yielded strong growth opportunities, we have added technical staff within the engineering department in multiple disciplines. Also CapEx investments made last year in automated test equipment has enabled high volume test capability to meet current demand, with additional test capacity planned again for later this year.

We remain driven to field technically superior products that enhance the soldiers' operational readiness and effectiveness using the latest radio programs and solutions, supporting dismounted operations and ground mobility, maritime and air platforms globally.

In closing, for the second quarter of 2019 we're pleased to see the expected bounce back of revenue into our communication systems business and the strong initial performance by new acquisition reflected in solid top and leveraged bottom line growth.

Communications Systems in hand, present ownership of our backlog provides good visibility for the remainder of the year and the team is actively pursuing other new product development driven innovative communication system program opportunities for potential revenue by the end of 2019 and throughout 2020.

At Battery & Energy Products, we look forward to leveraging the new revenue sources and talent base that SWE brings and plan to comprehensively yet quickly complete the tactical integration such that our full focus can be on serving their existing customers and winning new ones.

We're also patiently yet assertively looking to start to capture several new revenue streams as current and new product development and MGPP projects in the core business reach completion throughout the year. As a company we're selectively adding technical and sales resources while maintaining our cost discipline to better serve the growing revenue set and to continue to focus on prospect development for future revenue growth.

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're 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) We will go first to Gary Siperstein at 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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Mike, so my first question is -- you mentioned the 9 volt, I guess, slowdown in China. Is that just due to the weak Chinese economy or is it because they are transitioning into the 3-volt and so they are holding off 9-volt orders until the 3-volt goes into full production, what's the reason for that?

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

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What I was referring to mostly is, is the supply of the China produced 9 volt into the U.S. market are being impacted by the tariffs that are associated with that product import.

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

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And also on, I guess, based on last quarter's news release in terms of SWE's accretiveness, we didn't expect that to necessarily be accretive till the spring of 2020. So is that penny accretive in the quarter due to the fact that you're closed in the quarter? Did it have to do with the various debits and credits and adjustments for the first couple of months in the quarter with the closing, or was that an actual business accretiveness organic.

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

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Really all of the above, I mean I think the team performed very, very well from a revenue perspective. I think we got the benefit of sort of the last 2 months of a quarter versus -- sometimes the first quarter or the first month of a quarter can be a little slower. I think we are beneficiaries in having a second, third month of a quarter. The team performed well. But I also think on the acquisition itself that the team associated with the closing of the transaction deployed their typical operating expense discipline in making sure that we had all the proper inside and outside resources deployed. But that we just didn't waste money. So the elements that go into sort of the hurdles that we need to overcome the competition upfront. Obviously, it's a onetime closing cost, the write up of the initial inventory to market, the increase in intangible asset amortization and then interest expense. So it's a delightful surprise, the strong revenue production and profitability of SWE was able to overcome all those elements such that we scratched out slight accretion in the second quarter.

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

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Right. So based on what you just said, so it's not automatic that Q3, Q4 will show a slight loss and then we maybe get accretiveness in the spring, it's possible that could breakeven or show accretiveness sequentially from here?

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

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That factor really depends on volume.

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [8]

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And the only thing I will add here is all the adjustments in onetime expenses worked against us in the quarter. They were no positive. (inaudible)

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [9]

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Right. And those won't be there in Q3. So that will help. Just one last one on SWE. So you said no surprises thus far as you have delved more into talking with their customers, is it as robust as you expect? I mean did you find anything within a larger potential now that they are owned by a bigger company as you talk to customers?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [10]

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Not specifically with the customers yet. I mean I think just generally speaking, we have spent a lot of money on investment here, we want to make sure they prosper. So the management team and the Board and et cetera are very interested in this cycle of our strategic plan development to make sure that any and all opportunities that make sense for us that we're fully supporting those with our investment in human resources. So I think its good customer portion of it but I think above and beyond that it's what more can we bring to the party to help them prosper.

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

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And one last question on SWE. So Phil can you tell me how much of the purchase price was allocated to their land and building?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [12]

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Yes. I will break it down for you Gary. So it's $25 million, $25.248 million per the Form 8-KA that was filed, approximately $8.25 million is the assessed value of the building. In addition, there is working capital of just over $7 million, so you have the $8.2 million, you have the $7.2 million, the rest of it is truly the generation of cash flows going forward.

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

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And do you feel that $8.2 million assessed value is current market value as well?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [14]

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I know for a fact it is because the assessment was done at the very end of last year.

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

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And moving on to the -- where we stand in the shipments of the $19.2 million contract with Comm. Systems, how much were shipped in Q2 and is the balance going to be all in Q3 or some going to Q4?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [16]

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Well, Gary, I will start with the second half of your question, we expect that shipments will likely go across Q3 and Q4, a good chunk, a good starting point, I don't want to give the exact number but maybe I can give you a fair indication when you look at backlog. And you know that we don't give backlog on an interim basis. We give backlog of just at the beginning of the year. But the backlog is fairly consistent with -- but the backlog is fairly consistent with where it was when we started the year. So we'll leave it at that. But we are very pleased with the progress that was made, and I think we have a pretty solid schedule going forward that will help us in Q3 and Q4.

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

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So despite all the shipments backlog is remaining steady. So in other words, you're not going to tell me out of the $19.2 million how much is shipped already through June 30?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [18]

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Well, I'm not going to give you the specific dollar amount, but I will tell you that a majority of the $19.2 million lies in front of us in terms of percentages.

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

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And in terms of the increase in inventory, I think $22 million to $34 million, how much of that $12 million came with SWE? How much is related to the balance of the contract we just discussed and how much is just regular business?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [20]

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SWE came in at around just over $3.5 million. So when I look at the core businesses, we had approximately $7.2 million of inventory build from the end of the year. And I would say a very, very large proportion of that is inventory pre-buys to fulfill the $19.2 million. In addition, an increase in Battery & Energy Products for what we consider future opportunities that will be upon us, I would consider them. Although you don't like to show an increase in inventory, there were some, what I would call smart buys associated with that increase.

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

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Based on that Phil, with the $19.2 million completing by 12/31, where should inventory land at year-end?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [22]

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I think inventory, Gary, at year-end, in my perfect cash management crystal ball will be in the $25 million to $27 million range. And the reason why I'm using that range is because, I expect that there are going to be, God willing, some good solid backlog going into the next year as well.

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

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And in terms of the debt taken on for the SWE acquisition, what's your interest rate on that debt?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [24]

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The interest rate is approximately 4.22%.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [25]

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And Mike in terms of -- you mentioned a new contract in public safety with the new OEM. Is that over 7 figures, or is it in as just a starting contractor with that product with more to follow possibly, if they're happy, or any more color you can give us on that?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [26]

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Yes. I mean initially, it's small dollars, but it certainly has potential to be in the 7-figure future.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [27]

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And in terms of the 3 volt, both in the U.S. and China, which one should move first with commercial orders? And I know there could be, as you said in the thousands or it could be in the millions but -- of units. But is the U.S. ahead of China in the sampling and the testing? Or should they both sort of launch concurrently?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [28]

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They're both really concurrently being launched. I mean the focus of the China one would be if there's any particular OEMs that are manufacturing in China. We think that we have a great position, developing and manufacturing capability in the U.S. to serve the U.S. market sort of mutual type tariff or not. So really they're happening in a parallel basis. And ultimately, we want to build the product wherever it needs to be built to best serve the supply chain it's trying to fulfill.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [29]

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And just another follow-up on the $19.2 million. So is that part of an ongoing program for the general contractor with the government in terms of modernization? And is there potential for additional business in 2020-2021? Or is it won and done once the $19.2 million that satisfies them forever?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [30]

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That's the -- that would be a fulfillment of our delivery orders we currently have contracts for. But as part of a larger program that is expected to continue on and have additional transits in the future.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [31]

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So they can, once -- if they get additional orders from the government, they could come back to us for more amplifiers.

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [32]

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That's correct.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [33]

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And then -- so you mentioned some commentary on the end regarding ongoing testing of the Leader radio for later '19 and '20. And that's I guess part of this whole modernization next gen on these radios. And you mentioned Manpack, and I think you said 1 and 2 lines, that kind of thing. I don't think we've heard much in terms of Leader revenue in the first 6 months of this year. So is that lagging the $19.2 million contract for the other general contractor or they just move at different cadences? But will -- assuming these testings go correctly will be part of the Leader as well.

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [34]

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I think you may be confusing a little bit of the items. The $19.2 million consisted of 2 contracts. One, which was -- it's under the overall umbrella of Network Modernization Initiatives. And the other one that was attributable to the Leader. Because of -- we're shipping quantities of products from both of those different contracts to our channel partner, we're trying to be really careful not to designate one Leader versus [another] leader. But the point is we still have headroom to ship under both of those contracts for that $19.2 million of contracts that we received last year. And the Leader program is a highly publicized ongoing program that we're looking to try to do our very best on what we're making right now. So we're in our best position to get any future orders that may be more accretive our channel partner and enhance by extension to us.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [35]

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And so just one last question for my own clarity. So Leader is the name for the general program, and the $19.2 million contract was with the European contractor? Whereas when you say Manpack or the Manpack stuff is a U.S. contractor, but they're both, the U.S. and the international customer, are both shipping for the Leader program. Is that accurate?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [36]

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No. I think just to try and simplify it. The overall umbrella is U.S. Army's Network Modernization Initiatives, which was -- a portion of that was the Leader Radio. And these are being done through frankly, the multinational global OEM primes, but into the U.S. Army.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [37]

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And last question, I'll give someone else a chance. In terms of additional M&A, and has anything -- I know you're just digesting this one. But is there anything else in the -- any other kind of movement in the pipeline with potentially some prospects that maybe rejected you guys before and have come back to talk again or has anything new shown up since last conference call?

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [38]

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I mean the one thing I can really say at this point is that we continue to be equally interested in pursuing acquisitions as we were in the moment before we did the SWE acquisition. When we first found out about the SWE acquisition as a potential target, it was over 4 years ago. So continuing -- developing acquisition targets, developing those relationships. As our results get better, we're more attractive acquirers so that people start to think about combinations and reach out to us, or we reach out to them and they are more receptive. So it's just an ongoing prospect development type activity that hasn't changed one bit as a result of this acquisition that we've already done. And we hope to do more in the future.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [39]

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And last question, Phil, was there any stock bought back in the quarter?

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [40]

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There was not. And you'll see a complete reconciliation of what was repurchased since the program's inception in the 10-Q.

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Gary Steven Siperstein, Eliot Rose Asset Management, LLC - Founder, Managing Member, and President [41]

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And congratulations again on the strong quarter.

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Philip A. Fain, Ultralife Corporation - CFO, Treasurer & Corporate Secretary [42]

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Thank you, Gary.

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Operator [43]

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(Operator Instructions) And at this time we have no further questions. I will turn the conference back over to management for any closing remarks.

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Michael D. Popielec, Ultralife Corporation - CEO, President & Director [44]

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Great. Well, thank you once again for joining us for our second quarter 2019 earnings call. We look forward to sharing with you our quarterly progress in each quarter's conference call in the future. But I'd also like to note that we've updated our investor presentation on our website, as Bill mentioned earlier, so please check it out. Everybody, have a great day.

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Operator [45]

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And that does conclude today's conference. Again, thank you for your participation.