Good day, and welcome to this Ultralife Corporation's Fourth Quarter 2021 Earnings Release Conference Call. At this time, for opening remarks and introductions, I’d like to turn the call over to Ms. Jody Burfening. Please go ahead.

Thank you, Diana, and good morning, everyone, and thank you for joining us this morning for Ultralife Corporation's earnings conference call for the fourth quarter of fiscal 2021. With us on today's call are Mike Popielec, Ultralife's President and CEO; and Phil Fain, Ultralife's Chief Financial Officer. The earnings press release was issued earlier this morning. If anyone has not yet received a copy, I invite you to visit the company's website, www.ultralifecorp.com, where you'll find the release under Investor News in the Investor Relations section. Before turning the call over to management, I would like to remind everyone that some statements made during this conference call contain forward-looking statements based on current expectations. Actual results could differ materially from those projected as a result of various risks and uncertainties. The potential risks and uncertainties that could cause actual results to differ materially include the impact of COVID-19, potential reductions in revenue from key customers, acceptance of our new products on a global basis, and uncertain global economic conditions. 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 are 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.

Good morning, Jody, and thank you, everyone, for joining the call. Today, I'll start by making some brief overall comments about our Q4 2021 operating performance, after which I'll turn the call over to Phil, who will take you through the detailed financial results. After Phil is finished, I'll provide an update on the progress against our 2021 revenue initiatives, and the focus areas for 2022 before opening it up for questions. For the fourth quarter of 2021, current COVID supply chain component lead time and inflation challenges continue to weigh heavily on both revenue and earnings with revenue impacted by as much as $5.4 million, earnings by approximately $1.8 million, and EPS by $0.09. Driven primarily by the supply chain impact and some non-recurring military sales, revenues in our core end-markets of government defense and medical were both down year-over-year. We did once again see improvement in our oil and gas and China revenues, up 72% and 42% respectively year-over-year, which drove our fourth quarter commercial revenues up 10%. Nevertheless, total company revenues for Q4 were down almost $5 million year-over-year, while an operating profit loss of $1.2 million was reported, reflecting the supply chain impact, our ongoing investing in future revenue opportunities, and one-time acquisition costs. Operationally, key revenue generating event highlights for the quarter included the closing of a $23.5 million Excell Battery acquisition, the $4.2 million Leader Radio follow-on contract, the next $9.9 million BA-5390 IDIQ acquisition, and progress on several of our new production development projects. Despite the COVID supply chain constraints on revenue, order intake levels remained healthy, and the Q4 2021 ending core business backlog, not including the acquisition or IDIQ awards, was over $53 million, up $11 million or approximately 27% from Q3 2021 and up $14 million or 35% year-over-year. To address the supply chain lead time, logistics and cost challenges, we continue to work very closely with our suppliers and customers, and in many cases are raising prices. I would like to thank each and every one of our employees, channel partners and customers for their tremendous effort and cooperation in fulfillment execution given the present supply chain situation. In a few minutes, I’ll give you further updates on our revenue initiatives, but first, I would like to ask Ultralife’s CFO, Phil Fain to take you through additional details of the fourth quarter 2021 financial performance. Phil?

Thank you, Mike and good morning everyone. Earlier this morning we released our fourth quarter results for the quarter ended December 31, 2021. We also updated our investor presentation, which you can find in the investor relations section of our website and plan on filing our Form 10-K on or before our acquired deadline of March 16, upon completion of certain reporting requirements relating to our December 13 acquisition of Excell. Before starting my review, I want to point out to everyone that our fourth quarter includes Excell’s operating results for the period December 13 through December 31, 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 reference purposes, Excell’s revenues on a trailing 12-month basis were approximately 21 million and we expect Excell to be accretive, inclusive of all acquisition and financing costs within the first 12 months. Now, I will take you through our fourth quarter results. Consolidated revenues for the 2021 fourth quarter totaled $23.8 million, compared to $29.0 million reported for the fourth quarter of 2020, a decrease of 18%. Commercial sales increased 9.9%, reflecting a rebound in oil and gas and some international industrial markets and the initial sales contribution of Excell, partially offset by a reduction in medical sales from the initial surge of batteries for ventilators, respirators, and infusion pumps in response to COVID-19 last year. Government defense sales declined 50.5% relative to the shipment of an order for 5390 batteries in last year's period and lower shipments for our Communications Systems business. As Mike mentioned, for the 2021 fourth quarter, increased lead times on components from suppliers and other COVID-19 related logistics matters significantly impacted both our internal and our customers' manufacturing schedules, resulting in delays in our shipments to future periods. Of the $5.4 million adverse revenue impact, $3.4 million was related to our government defense business, with the remaining $2.0 million related to our commercial business, primarily in the medical sector. On a segment basis, Battery & Energy Products accounted for $3.5 million of the $5.4 million revenue impact and communication systems for $1.9 million. Revenues from our Battery & Energy Products segment were $22.1 million, compared to $25.3 million last year, a decrease of 12.7%, attributable to a $2.9 million or 30.1% decrease in medical sales, and a $4.7 million or 48.9% decrease in government defense, partially offset by a $1.6 million or 71.5% increase in oil and gas market sales. Excell sales of $1.1 million end-up $0.8 million or 41.5% increase in sales from our China operations, primarily driven by our new thin cell batteries. The decline in government defense sales resulted from a large shipment in last year's fourth quarter of a 5390 battery order placed in December 2019 by the U.S. Department of Defense and delayed shipments to a large global defense prime attributable to supply chain issues. The backlog for our Battery & Energy Products business of $55.4 million, the highest in our history, increased by $20.7 million or 60% over year-end 2020. The sales split between commercial and government defense for our battery business was 78/22, compared to 62/38 for the 2020 fourth quarter, and the domestic to international split was 50/50, compared to 54/46 last year, accentuating both the delays in U.S. Government Defense sales and the continued success of our global revenue diversification strategy. Revenues from our communication systems segment were $1.7 million, compared to $3.7 million last year, a decrease of 54.6%, reflecting shipments delayed to future periods due to increased lead times on components from suppliers and other COVID-19 related logistics matters. The backlog for our Communication Systems business of $8.0 million increased $3.3 million or 70.1% over year-end 2020. On a consolidated basis, the commercial to government defense sales split was 73/27 versus 54/46 for the year earlier quarter. Our consolidated gross profit was $5.3 million, compared to $7.4 million for the 2020 period. As a percentage of total revenues, consolidated gross margin was 22.3%, versus 25.4% for last year's fourth quarter. Gross profit for our Battery & Energy Products business was $4.8 million, compared to $6.4 million last year. Gross margin was 21.8%, a decrease of 340 basis points from 25.2% reported last year, primarily reflecting lower factory volume causing a 200 basis point decrease due to lower overhead absorption as compared to last year; material usage, new product transitions, resulting in a 100 basis point decline, and 55 basis points of purchase accounting adjustments relating to the acquisition of Excell. In accordance with Generally Accepted Accounting Principles, we wrote up Excell’s beginning inventory to fair market value, thereby eliminating a significant portion of the gross profit from the sale of this inventory since December 13. For our Communication Systems segment, gross profit was $0.5 million, compared to $1.0 million for the year earlier period. Gross margin of 28.1%, compared to 26.3% last year, reflecting favorable sales mix partially offset by lower factory throughput in the 2021 period. Operating expenses were $6.5 million compared to $6.1 million last year, an increase of $0.4 million or 6.2%. The increase was fully attributable to Excell’s operating expenses of $0.6 million, including $0.4 million of one-time direct acquisition costs reflecting customary legal audit and due diligence expenses. Excluding Excell, operating expenses decreased $0.2 million or 2.9%, due primarily to lower corporate expenses, partially offset by our investment in engineering resources, dedicated to the conformal wearable battery IDIQ contract announced on May 17. As a percentage of revenues, operating expenses were 27.4%, compared to 21.2% for last year's fourth quarter. Operating loss for the fourth quarter of 2021, inclusive of $0.5 million of purchase accounting adjustments and direct acquisition costs was $1.2 million, compared to income of $1.2 million for the 2020 quarter, reflecting lower sales and gross margins, resulting from supply chain delays in our continued investments in new product development. We estimate that the negative impact of the supply chain delays on operating income was $1.8 million for the 2021 fourth quarter, split evenly between the businesses. Our tax benefit for the fourth quarter was $0.2 million, compared to a tax provision of $0.7 million for the 2020 quarter, computed on a GAAP basis. Including the non-recurring acquisition adjustments and expenses amounting to $0.5 million, $0.03 per share, the net loss was $1.1 million or $0.07 per share on a diluted basis for the 2021 fourth quarter. This compares to net income of $2.1 million or $0.13 per share on a diluted basis for the 2020 quarter. The 2020 fourth quarter included an award of approximately $1.6 million net of fees upon U.S. district court approval and order authorizing the distribution of funds to claimants in the lithium-ion battery antitrust settlement. Ultralife maintained its solid balance sheet in the fourth quarter. Cash on hand decreased year-over-year from $10.7 million to $8.4 million, reflecting the cash contribution towards our acquisition of Excell and the payoff of the remaining debt from our acquisition of SWE. We ended the 2021 fourth quarter with working capital of $47.4 million and a current ratio of 3.6 compared to $45.8 million and 3.4 for year-end 2020. As a result, we remain well positioned to fund organic growth initiatives, including new product development and strategic capital expenditures while continuing to expedite our organic growth through accretive M&A. Going forward, with our growing backlog, ample liquidity, diversified end markets, and growth initiatives, all highlighted by our acquisition of Excell, we remain steadfastly focused on realizing the full leverage potential of our business model.

Thank you, Phil. For 2022, we are continuing to focus on driving revenue growth by market and sales reach expansion, primarily through diversification. New product development and strategic capital expenditures for competitive advantage, and a disciplined approach to accretive acquisitions. For the Battery & Energy Products business, the strategy for market and sales reach expansion is about diversifying more into the global commercial markets and the international government defense markets to lessen any dependence on the U.S. Government defense market. To that end, we are very excited to have completed the acquisition of the Excell Battery Group based in Canada and with operations also in the U.S. for $23.5 million on December 13. This acquisition supports our diversification in the commercial markets, while providing further scale of our Battery & Energy Products business, realizing cost synergies and driving the proven operating leverage of our business model. It expands our participation in a variety of industrial markets, including downhole drilling, OEM industrial and medical devices, and further exposes us to currently unserved OEM device verticals such as automated meter reading, ruggedized computers, mining, and other mission-critical applications, which demand uncompromised safety, service reliability, and quality. As a profitable and well-run company, Excell is a leading independent designer and manufacturer of high-performance smart battery systems, battery packs and monitoring systems to customer specifications. Excell is processing an organizational culture and business model similar to our own with experienced tactical and sales resources, which we plan to utilize and progress our global new product and selling initiatives. The initial 100-day functional integration plans are in full execution mode and the acquisition transaction is expected to be accretive on an EPS basis within 12 months. For Q4 2021, overall global Battery & Energy medical revenue represented 30% of total Battery & Energy products sales. Demand from current customers was for applications such as ventilators, respirators, infusion pumps, digital x-ray, surgical robots, and vital science monitoring devices. We also received over $8.8 million in delivery orders from existing medical customer blanket and/or multiyear agreements. Q4 oil and gas and subsea electrification commercial revenue was approximately 17% of total Battery & Energy sales. We continue to see improvements in our core oil and gas business, which drove up total Q4 oil and gas revenues at a strong double-digit rate year-over-year and capped up a total year 2020 revenue increase of 27%. As contemplated as part of the acquisition a few years ago, our SWE operations continue to diversify their capabilities, supporting our engineering efforts for overall company product development in both medical and government defense end markets. We are also truly excited about further additional sales and operating leverage in the oil and gas space as a result of our newest acquisition of Excell Battery. On the international government defense front, in Q4, we received an order for our lithium-manganese dioxide 5390 and CFx blend 5790 primary batteries from an international customer, which will ship within the next 12 months, with additional follow-on awards possible. Battery & Energy's Q4 U.S. government defense business represented 22% of total Battery & Energy Products sales, consisting primarily of radio battery and chargers to OEM primes. In Q4, we were also very pleased to announce a $9.9 million follow-on BA-5390 primary battery IDIQ award from DLA. In the meantime, we do have a separate small delivery order to complete under a prior 5390 IDIQ contract, which is expected to ship in the first half of this year. Regarding the wearable conformal battery IDIQ contract, which we announced last May, we continue product development and component testing towards the first article testing schedule expected to begin in the latter part of 2022, demonstrating full compliance with the contractual product specifications and program requirements. As a reminder, regarding these two IDIQ contracts, actual delivery orders, including quantities and timing are at the discretion of the DoD. New product development remains a core element of our organic growth strategy. During the fourth quarter, we continue to advance several of our multi-year development new products, including, but not limited to, a next generation medical cart battery, a high-capacity smart U1 battery, new 5790 and XR123A CFx blend primary batteries, OEM public safety radio batteries, and next-generation ruggedized modular large-format energy storage batteries. The next generation medical cart battery is now undergoing field trials at customer sites, and we also expect to showcase it at the upcoming Healthcare Information and Management Systems Society Trade Show in Orlando, Florida this March. This product was conceived, designed, sourced, and manufactured over multiple Ultralife locations, leveraging our worldwide technical talent and delivering a product suitable for a global customer base. Initial customer response has been very positive. New product development and multi-generational product planning continue to keep us current with market needs and gives us the opportunity to remain close with and provide value to our key customers. In addition to the investment in new product development and multi-generational product planning, we are also continuing to deploy strategic capital expenditures in our facilities to strengthen our competitive differentiation. The new manufacturing line at our New York, New York facility for our new lithium manganese dioxide primary 3-volt cell has started fulfilling initial customer orders. Customer feedback is favorable on our products' performance, safety, and contribution to the OEM devices' competitiveness. Performance differentiation has been demonstrated in a high rate or power capability, which is particularly useful in illumination devices and medical devices with short, high pulse rate applications. We also continue to undergo customer evaluation of a similar form factor 3-volt primary cell, except with a CFx blended battery chemistry, which will offer significant longer run-time, affording enhanced system reliability, to address growing applications in IoT, remote sensor, and medical markets. In our China facility, where we are now in the second phase of our project to upgrade our thionyl chloride primary ER cell, customer feedback on the improvements made so far continues to be positive and backed up by initial orders. For this product, which can be required to operate anywhere from 5 years to 10 years to 20 years, customers have long testing and qualification periods. When product performance is validated, this leads to sticky customer relationships. In addition, this several-stage project to make product and process improvements will result in a multiple increase of our total available market with newly identified thionyl chloride ER cell, commercial and industrial applications. In Q4, we began seeing the first production results from this qualification process, and we expect to see continued revenue acceleration in 2022 and 2023. Our Global Medical and other industrial customers continue to tap into our China operations for the supply of cells and battery pack solutions, which is growing our value proposition. In Q4, our total China operations revenue was up 42% year-over-year, an indicator of growing demand for our China capabilities. Our goal is to produce the highest value proposition, best quality, and safest products in close collaboration with our end-market OEM customers, which have one or more of our global locations best serve their supply chain. Looking at our communication systems business, in Q4 new product development revenue from products less than or equal to three years old, represented approximately 59% of Communications System sales. For the U.S. Army's hand-held Manpack Small Form Fit and Leader Radio programs, we are working on the supply chain and preparation for manufacturing delivery later in 2022, including the previously announced $4.2 million vehicle amplifier adapters award. As an ongoing VAA provider for the various radio programs, we believe we are well positioned for future awards. Support to military radios is at the core of the Communication System products. A new initiative is currently underway with a Tier 1 defense partner to develop a unique power solution for radio integration into aircraft. Early development units were well received, and the next round of advanced integration is ongoing for testing throughout 2022 with procurement potential production units in 2023 and 2024. Supply chain issues continue to impact the communications systems business. We entered 2022 with a backlog of approximately $8 million, supporting orders for amplifier upgrades, radio power supplies, speaker kits, and non-standard vehicle communication kits. However, electric component availability and extended material lead times have negatively impacted manufacturing timelines and revenue forecasting. For components that are available, delivery challenges are often compounded with increased transportation and logistics costs. Our team continues to work closely with customers and suppliers to mitigate the supply chain and manufacturing impact as much as possible. Regarding our communication systems team's push into commercial markets, we delivered initial low-rate production units of a mobile data card in Q4. These units enable analysis of autonomous vehicle data during testing and manufacturing of the vehicles, and are currently undergoing test and evaluation, with customer initial feedback provided and adjustments being made while waiting on final reports. This product is the first pure commercial, non-government defense product offering for communication systems, and a significant milestone for the team. Our second commercial product under development is a virtualized radio access network enclosure, supporting 5G network deployments worldwide, which was delayed due to material acquisition issues, but is now ready to ship to the customer for initial test and evaluation, with production buying orders expected to begin in 2023. The diversification in the commercial products combined with our continued participation in ongoing global military radio programs supports our long-term growth potential of the Communication Systems business. In closing, for the fourth quarter of 2021, we were very pleased to close the Excell Battery acquisition, to receive the next Leader Radio VAA follow-on contract, as well as the next BA-5390 IDIQ award, while continuing to make key progress on several of our new product development projects. Although we begin 2022 still under the COVID supply chain and inflation cloud, we believe we are well positioned for financial performance improvement as the year progresses due to the immediate revenue lift from the acquisition, the strong organic revenue carryover backlog, our exposure to the oil and gas recovery, several DoD IDIQ awards in various stages of maturity, including the 5390, 5790, and conformal wearable batteries, and initial revenue realization from some of our new product development projects, such as from the new ER and CR cells, the new medical cart batteries, and several new communication systems integrated computing, 5G, and AI commercial solutions. During 2022, we remain aggressively focused on the items within our control, namely, completing our existing new product development projects, integrating our latest acquisition, continuing to bolster our teams, and looking for additional transformational growth opportunities, organic or through acquisition that deliver new meaningful sustainable annual revenue streams in attractive growth markets from new competitively differentiated products and solutions. The major industries we serve, military defense, energy, and medical, provide us the fertile base, durability, and resiliency, to ride out the current economic challenges. As we progress through 2022, we will continue to optimize our financial performance, targeting total year profitability, solid cash flow from operations, and maintaining our strong balance sheet while supporting transformational products and investments. Our goal in 2022 is to return to our next year of profitable growth.

This concludes my prepared remarks, and I'll be happy to open the call for questions.

Hey good morning.

Good morning, Josh.

Just as far as the supply chain issues, can you just expand on some of the specifics? How much of the headwind is lack of receiving needed components to make your products versus customers not taking the product at this point?

Yeah. I think we divide into two pieces, and the piece we can control, I'll call the much easier piece that's our supply chain. So, in our case, we purchased cells on a forward basis. You see our inventory increased, we probably spent $3 million just to pay in advance for the opportunity to supply needed cells to fill the back orders. It wasn't easy being in a position to obtain those cells and it hurts even more when you have to pay in advance, but that's reality. So, the piece that we can control, our supply chain for the most part is something that I think our folks have done a very good job at. The parts we can control when certain individuals in our supply chain despite all the precautions we take come down with COVID or are exposed to COVID and it puts a line on the lamp for a week or possibly longer, that certainly hurts. One of the tougher parts, Josh, is the part we can't control and that's the customer's supply chain because the customer in a lot of cases is, of course, telling us when they want to accept the goods. They want our components, but our customers, our OEM device companies have a lot of different components coming in, ours being just one of many. So, that's really the part that we can't control. I would say, if I have to split it up, 50% of it is what we can control, and 50% of it is what we can't control. The part that we can't control, we see the big increase in backlog and we have not had any cancellations of any orders whatsoever, and it's just forcing what used to be weekly now daily and sometimes hourly communications with our supply chain.

Got it. Thanks for that. And then on the defense business, what are your thoughts on the continuing resolution? If we get a budget in the spring or summer ahead of the midterm elections, what do orders look like versus maybe a worse-case scenario for a full-year continuing resolution?

Yes, we really found a lead of our major OEM primes. There's been a number of recent announcements and activities that would suggest that we could be in a favorable position. In terms of some of the transactions that would come straight from DLA, we have much less visibility to those. So, I would say we're cautiously optimistic, but we're not counting anything for sure. In the backlog comments that we provided, we certainly didn't have anything included in there in our IDIQ. So, we don't really count anything in our backlog unless we have a firm delivery order for it. I would say, we're cautiously optimistic, but it's been a pretty up and down year over the last couple of years. Therefore, we're not trying to get ahead of ourselves in terms of expectations.

Got it. And then on the Excell acquisition, where did you see the biggest opportunity? Was it in the new products and oil and gas? Was it synergies on capacity or something else? Maybe if you could just walk through some of the thought process there?

When we look at any acquisition, Josh, and we go through dozens and dozens of different opportunities. The things that we consistently look for are acquisitions where the day after we buy them, it's not their high watermark for revenue. We look for businesses that, in their own right, are growing. We saw that certainly with Excell. The second thing we look for is clear visibility to return to an operating margin rate that was equal to or better than the operating margin rate we had as a company prior to the acquisition. This means that there has to be visibility to profitability; it's not just some future expectation that's not – we're not able to connect the dots on yet. Thirdly, we look for accretion on an EPS basis within 12 months. In this case, this was an ongoing viable business as we understood the culture, we understood the markets, we understood the business model for, and we could see a clear path to accretion within 12 months. Of course, a reasonable return on investment. We go through lots of different deals, and we're constantly having new deals brought to us. If we put it through those four criteria, essentially Excell checked every single box. From a financial perspective, making sure it makes sense on an economic basis, what also excites us about it is the people that we get. We've talked about it and other acquisitions in the past. We get a great bunch of people in terms of their technical capabilities to apply our product to new markets. They get the opportunity to sell some of our products that they may not have had access to before. We could sell some of their products, but fundamentally, it's an ongoing operation that's profitable that will continue to grow organically after the acquisition. Those are some of the things that we saw in Excell and made us want to do the acquisition.

Got it. And then just, on the communications commercial segment, how should we think of investment versus timing the returns versus historical business? How are you going to balance those two?

That's a good question. They both involve extensive development and customer evaluation and acceptance testing. I think that the way we're looking at it is that they accentuate our capability to provide highly technical integrated solutions in a battle-hardened enclosure and capability. That's very consistent with our military defense, but isn't so subject to the ups and downs and cyclicality of the military defense business. So, I think it's a good complementary fit to our overall capability. It is a good diversification from a government defense business. We're cautiously optimistic about it. They do have some long cycle times, but we've been commenting, and I know for several quarters, we're starting to see some low-rate production shipments. Therefore, we're quite optimistic about it. Like anything else, we've got to execute, and we've got to deliver and get the results.

Great. Thank you for the time.

Thanks Josh.

It appears we have no further questions at this time. I would like to turn the conference back to our speakers for any additional or closing remarks.

Okay. Well, thank you once again for joining our fourth quarter 2021 earnings call. We look forward to sharing with you our quarterly progress in each quarter's conference call in the future. As Phil mentioned, we also updated our investor presentation on the website. So, please check it out and have a great day.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.