Good day, and welcome to this Ultralife Corporation First Quarter 2022 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, Ashley, and good morning, everyone, and thank you for joining us this morning for Ultralife Corporation's earnings conference call for the first quarter of fiscal 2022. 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 and 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 Q1 2022 operating performance, after which I'll turn the call over to Phil who will take you through the detailed financial results. After Phil has finished, I'll provide an update on the progress against our 2022 revenue initiatives, before opening it up for questions. For the first quarter of 2022, strong demand drove our Battery & Energy Products' medical revenues up 9%, and oil and gas revenues up 20% year-over-year, organically growing our Battery & Energy Products business, and when combined with the revenue boost from our Excell Battery Group acquisition, more than offset continued supply chain-impacted government defense revenues in both Battery & Energy Products and Communications Systems. This resulted in a 17% total company revenue increase over the prior year. We also exited Q1 2022 with approximately $92 million in backlog, an increase of 45% from the end of the previous quarter. Operating earnings in Q1 continued to be pressured by global supply chain challenges, with seemingly daily raw material and input component price inflation not yet fully recovered with our price increases to customers. Other gross margin headwinds included substitute product identification, qualification, and procurement costs, long lead time and manufacturing inefficiencies, and new product transitions. Nevertheless, through price increases, cost control, and the positive earnings contribution of Excell, our team significantly reduced the operating loss from the fourth quarter. In a few minutes, I'll give you further updates on our revenue initiatives, but first I'd like to ask Ultralife's CFO, Phil Fain, to take you through additional details of the first quarter 2022 financial performance. Phil?

Thank you, Mike, and good morning, everyone. Earlier this morning, we released our first quarter results for the quarter ended March 31, 2022. We also filed our Form 10-Q with the SEC, and have updated our investor presentation, which you can find in the Investor Relations section of our website. Consolidated revenues for the 2022 first quarter totaled $30.4 million, compared to $26.0 million reported for the first quarter of 2021, an increase of 16.9%. Commercial sales increased 62.1%, reflecting the contribution of Excell and solid growth across virtually all commercial end markets, including medical, oil and gas, and industrial. Government defense sales declined 38.8% due to continued supply chain disruptions, including increased lead times on components from suppliers, and other related logistics matters impacting both our internal and customer manufacturing delivery schedules, resulting in delays in our shipments to future periods. Revenues from our Battery & Energy Products segment were $29.2 million, compared to $22.1 million last year, an increase of 31.8% attributable to Excell sales of $6.4 million and a $2.5 million or 17.2% increase in commercial sales, partially offset by a $1.9 million or 24.1% decrease in government defense sales. The increase in commercial sales excluding Excell consisted of a $1.1 million or 30.5% increase in industrial end market sales, a $800,000 or 20% increase in SWE's oil and gas market sales, and a $600,000 or 8.5% increase in medical battery sales. The backlog for our Battery & Energy Products business of $82.9 million, the highest in our history, includes $66.2 million requested for shipping in 2022, representing an increase of $14.3 million over the comparable amount at year-end 2021. The sales split between commercial and government defense for our battery business was 80/20, compared to 65/35 for the 2021 first quarter, and the domestic to international split was 50/50 compared to 57/43 last year, highlighting both the delays in U.S. government defense sales and the continued success of our global revenue diversification strategy. Revenues from our Communications Systems segment were $1.2 million, compared to $3.9 million last year, a decrease of 68.3%, reflecting shipments delayed to future periods due to increased lead times on components from suppliers, and the timing of orders placed by our customers. We have identified eight sales opportunities that were pushed out to future periods by our customers, plus data opportunities for which we did not have the components on hand to ship in the first quarter. The backlog for our Communications Systems business, of $9.0 million, includes $7.6 million requested for shipping in 2022, representing an increase of $1.0 million over the comparable amount at year-end 2021. On a consolidated basis, the commercial to government defense sales split was 77/23, versus 55/45 for the year-earlier quarter. Our consolidated gross profit was $7.0 million for both the 2022 and 2021 periods. As a percentage of total revenues, consolidated gross margin was 22.9% versus 26.9% for last year's first quarter. Gross profit for our Battery & Energy Products business was $6.7 million, compared to $5.4 million last year. Gross margin was 23.1%, a decrease of 130 basis points from 24.6% reported last year, primarily reflecting raw material and component material cost inflation ahead of customer price realization. Material usage variances, new product transitions, and the completion of the purchase accounting adjustments for finished goods inventory sell-through related to the acquisition of Excell are factors here. For our Communications Systems segment, gross profit was $200,000, compared to $1.5 million for the year-earlier period. Gross margin was 19.4%, compared to 39.9% last year, reflecting lower volume resulting in the under absorption of factory costs and an unfavorable sales mix. Operating expenses were $7.3 million, compared to $6.0 million last year, an increase of $1.3 million or 20.4%. The increase was primarily attributable to the addition of Excell. Excluding Excell, operating expenses increased $200,000, reflecting our continued investment in engineering resources and test materials dedicated to the Conformal Wearable Battery IDIQ contract. As a percentage of revenues, operating expenses were 23.9%, compared to 23.2% for last year's first quarter. Operating loss inclusive of $100,000 of purchase accounting adjustments and remaining Excell acquisition costs was $300,000, compared to income of $1.0 million for the 2021 quarter. Our tax benefit for the first quarter was $300,000, compared to a provision of $200,000 for the 2021 quarter computed on a GAAP basis. Including the interest expense to help finance the Excell acquisition, the net loss was $200,000 or $0.01 per share. This compares to net income of $700,000 or $0.04 per share on a diluted basis for the 2021 quarter. Excell was accretive by approximately $0.02 per share. Adjusted EBITDA, defined as EBITDA including non-cash stock-based compensation expense, was $1.1 million or 3.6% of sales, compared to $2.0 million or 7.8% for the first quarter of 2021. Turning to our solid balance sheet, to proactively manage our supply chain, reduce the impact of potential component price increases, and optimize our position to service our rising backlog, we increased inventory by $3.2 million or 9.6%, compared to year-end 2021. We ended the 2022 first quarter with working capital of $49.1 million and a current ratio of 3.5, compared to $47.6 million and 3.5 for year-end 2021. Debt-to-capital at quarter-end remained low at 0.15. And 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, we remain steadfastly focused on realizing the full leverage potential of our business model. I will now turn it back to Mike.

Thank you, Phil. For 2022, we continue to focus on driving revenue growth by market and sales reach expansion primarily through diversification, new product development and strategic CapEx for competitive advantage, and a disciplined approach to acquisitions. For the Battery & Energy Products business, diversification and market and sales reach expansion has meant further penetrating the global commercial markets as well as the international government defense markets, which has helped reduce our historical concentration in the U.S. government defense market. This was nicely demonstrated in the first quarter as our medical and energy markets' revenue increases led to 3% of net B&E organic revenue growth. In Q1, and including Excell, the total commercial and international government defense revenues represented approximately 82% of our total B&E sales. We remain very excited about the recent Excell Battery Group acquisition as it is another step in diversifying our end markets, while providing further scale of our Battery & Energy Products business. It bolsters our engineering and sales capabilities, while expanding existing energy, industrial, and medical markets, and penetrating new commercial markets such as automated meter reading, ruggedized computers, and mining. The initial 100-day functional tech reintegration plans are substantially complete, and we are now transitioning Excell into the regular Ultralife operating cadences. The acquisition was EPS-accretive in Q1, and revenues met expectations its first total quarter as part of the Ultralife portfolio. Overall global B&E medical revenues represented approximately 26% of total Battery & Energy products sales. Demand from current customers was for applications such as ventilators, respirators, infusion pumps, digital x-ray, and surgical robots. We also received over $4 million in delivery orders from existing medical customer blanket and/or multiyear agreements. Q1 oil and gas and subsea electrification commercial revenue was approximately 31% of total B&E sales. Driven by increasing oil prices and rig counts, we continue to see gains in our core oil and gas business. Since the acquisition a few years ago, our SWE operations also continue to diversify their capabilities, supporting our engineering efforts for product development in both medical and government defense end markets. On the international government defense front, in Q1, we received an order for our Land Warrior battery products, which was shipped within the next 12 months. B&E's Q1 U.S. government defense business represented approximately 18% of total B&E products sales, consisting primarily of radio battery and chargers to OEM Primes. We also have a separate small delivery order to complete under a prior 5390 IDIQ contract, which is expected to ship later this year. The wearable conformal battery IDIQ contract, which we announced last May, continues through the product development process and component testing towards the first article testing expected to begin in the middle part of this year, demonstrating full compliance with the contractual product specifications and program requirements. As an IDIQ contract, actual delivery orders, including quantities and timing, are at the discretion of the DoD. New product development remains a core element of B&E's organic growth strategy. And during the first quarter, we continued to advance several of our multiyear development new products. In March, we showcased our X5 next generation medical cart battery and power system at the Healthcare Information and Management System Society Tradeshow in Orlando, and had significant interest from both cart manufacturers and IT professionals. As evidence of this interest, towards the end of the quarter, we received our first $2 million order for this new medical cart battery and power system, as well as additional sensors with shipping starting later this year. We have also conducted demonstrations of this system at several OEMs with positive results, maintaining the momentum from the tradeshow. Other new product development projects currently underway include, but are not limited to a higher 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. New product development and multigenerational product planning continue to keep us current with market needs and give us the opportunity to remain close with and provide value to our key customers. In addition to the investment in new product development and multigenerational product planning, we are also continuing to deploy strategic CapEx investment in our facilities to strengthen our competitive differentiation. Progress continues at our New York, New York facility on the new lithium manganese dioxide primary 3-volt cells manufacturing line. We continue to see interest from OEMs in our lighting and medical markets for the new 3-volt products. Historically, we have developed technology to meet the strict demands of some of those challenging applications in defense, medical, and industrial markets with unique products. In our latest 3-volt product, we have leveraged that technology to improve the power capabilities in more widespread applications. This means lights that shine brighter and last longer in the LED flashlight segment and longer operating time in medical applications; two large markets for this product. We also have a customer evaluation underway for a similar form factor cell, except using a CFX blended battery chemistry that was initially developed to provide longer lasting power to our war fighters, is now being tested and validated in commercial, medical, and industrial markets to provide some of the longer performing benefits needed for the most critical applications. At our China facility, we are deep into the second phase of a multistage project to upgrade our thionyl chloride primary ER cells, and in Q1, ER cell production and customer testing has continued, with positive results. While testing these products take a long time because of the demands of the applications, we are beginning to see some of the results of our sampling efforts. Several customers are in various stages of commercial activity, driving an increase in our production of our ER product in our China facility. With each stage of product and process improvements and newly identified thionyl chloride ER cell, commercial and industrial applications, we are expanding our available revenue opportunity set. We also continue to grow our China operations value proposition, with global medical and industrial customers for the supply of our cells and battery pack solutions. In Q1, our total China operations revenue was up 13% year-over-year. Our goal is to produce the highest value proposition, best quality, and safest products in close collaboration with our end-market and OEM customers, which have one or more of our global locations that best serve their supply chain. Looking at Communication Systems, in Q1 new product development revenue from products less than or equal to three years old, represented approximately 16% of Communications System sales. For the U.S. Army's hand-held Manpack Small Form Fit and Leader Radio programs, we continue to work the supply chain and prepare for manufacturing delivery later in 2022 of the previously announced $4.2 million vehicle amplifier adapters' award. New product development activities for defense and commercial applications continue in concert with several OEM partners to meet multiple emerging requirements in system integration. One opportunity is the power solution for radio integration into aircraft, where current efforts are focused on prototype refinement, testing, and build-out throughout 2022 with procurement for potential production units in 2023 and 2024. Another project is for an Edge Service System integration, which has completed multiple customer tests and evaluations. This configuration is a two-case system, one housing a server, and the other providing uninterruptible power supply backup with ancillary items. Incremental smart volume DoD orders continued in Q1, with delivery expected in Q2. Regarding our Communications System team pushing to commercial markets, the initial low rate production units of a mobile data cart delivered in 2021 are undergoing operational testing with the customer conducting analysis of autonomous vehicle data during testing and manufacturing of the vehicles. Our second commercial product is a virtualized radio access network enclosure, supporting 5G network deployments worldwide, which was delivered to our customer and is now supporting testing and evaluation by a cellular network provider for use and expanding 5G market installation. Communication Systems' initial entry in commercial products meeting larger programs combined with our strong participation in global ongoing military radio programs provides a roadmap for long-term sustainable growth. In closing, for the first quarter of 2022, we were delighted to start the new year with strong commercial revenue generation boosted by the addition of Excell. As we progress through 2022, we are well positioned for additional revenue lift growing from our order backlog, our increased exposure to the oil and gas recovery, the dry powder of multiple DoD IDIQ awards in various stages of maturity, including the 5368, 5390, 5790, and conformal wearable batteries. The initial revenue realization from the new medical cart batteries and our new CR and ER cells, shipments against the latest Leader Radio VAA follow-on contract, and several of our new communication systems, integrated computing, 5G, and AI commercial solutions. Our capabilities and the mission-critical end-markets research, military defense, energy, and medical are aligned well with current world defense needs. Where supply chain-related issues and inflation have continued to impact profitability, we are encouraged by the directional progress made in Q1, and are expecting continued financial performance improvement throughout the remainder of the year as manufacturing efficiencies return and price increases do not hit the ledger. We also continue working with our suppliers and customers to strategically manage working capital, including inventory, to best position us for making customer delivery schedules and mitigating, to the extent possible, raw material and component shortages and cost inflation. As a result, we are targeting total year profitability, solid cash flow from operations, and maintaining our strong balance sheet while supporting transformational products and investment. Our goal, in 2022, remains to return to our next year of profitable growth. Operator, this concludes my prepared remarks, and I will be happy to open the call for questions.

Thank you. We will now take our first question from Josh Sullivan of The Benchmark Company. Please go ahead.

Very good morning.

Morning.

Morning, Josh.

Just as far as supply chain dynamics here, last year seemed to me maybe a little more related to transit and other factors. Now, we're staring down inflation. Can you just give us some color on what supply chain issues are maybe improving versus those that are maybe going to grow throughout 2022?

Josh, thanks for the question. I think it would be difficult at this point to really call any victories regarding supply chain issues improving at this point. I just think that we probably have a better process of understanding what to be looking for, working very closely with our suppliers to try to get a real beat on what deliveries look like, what cost increases potentially look like. And then working very closely with our customers to pass along that information, evaluate how their supply chain is looking, and then try to balance out the things that are coming into us and the things going out from us with our customers to make prudent decisions. But I think it'd be difficult at this point to really point out anything in the overall supply chain situation that's dramatically improving at this point. It's probably just more that we're getting more used to it and getting better at handling it, and have real broad and open lines of communication with both our suppliers and our customers.

Got it. With new products starting to generate revenue this year, how should we think about margin progression? Should we anticipate an increase in inventory or marketing efforts affecting margins? I'm trying to understand the cadence throughout the year.

I think our schedule for the year, when considering various new products and the transition process from the new product group to high-volume manufacturing, shows that historically, it has taken a certain amount of time. However, it appears that this timeframe has now been extended due to the large number of new products. For us, the challenge lies in how we deploy our manufacturing engineers and operations leadership. I believe we will see margins improve throughout the year because we address all issues, just as we do with cost increases from our suppliers, and we know how to tackle them. The focus is fully on this effort. Specifically, we are targeting improvements of $0.02 to $0.03. From looking at different areas, we estimate improvements in the $300,000 to $500,000 range, and we aim to achieve these improvements as quickly as possible. We're being methodical in our approach because we want to ensure that the essential products we deliver meet specifications without any shortcuts.

Got it. And then just kind of related to that, the $83 million in backlog, how much of that is related to some of these new products you're launching this year, 3-volt crash carts, etc.?

I would say a relatively small part of the $92 million. Let me just take you through the backlog. The backlog is $92 million. And then we break it down as to what is requested for shipping this year. It's $74 million of what is being requested this year, versus $58 million, which was requested for shipping last year. The $92 million compares to $63 million as we exited the year. So, as Mike said, it's this big 45% increase, but a lot of it is just either new products that are in the process of transitioning or have transitioned to high-volume manufacturing, and I would say that the majority is ongoing products, a handful of products that are in the process of transitioning, which includes some of the military batteries, some of the public safety batteries, and as Mike had mentioned, the $2 million order that we received for the medical carts. So, the large majority are ongoing products that we are comfortable with on the operations side, although not so comfortable with on the supply and component side.

And just on the Excell acquisition, how is the integration progressing? Any new opportunities that you have seen since you had some time to get acquainted?

No, I mean actually it has been very exciting and very positive, as mentioned in the prepared remarks. You know, the tactical stuff you want to go to immediately to make sure he gets paid, all the collections are being put into the right bank accounts, and our customers are receiving the products they deserve. And so, now we are moving along the next phase, where we can get more deeply into identifying larger level cost synergies and more strategic revenue synergies. We've found that actually on the revenue side there is very little overlap. So, we are participating in a broader energy market than we were before the acquisition. We're looking at some short-term small cost synergies to take advantage of, but at the end of the day, it's the thing I always say—it certainly isn't pandering; it's the absolute truth. I just love getting talented people on our team, and we have, from this acquisition, the one we did in the U.K., and the acquisition we did with SWE a couple of years ago, I think we have some of the smartest and most experienced battery and battery pack engineers and salespeople on the marketplace, and that’s the most— to me, the thing I get most excited about. But so far, so good. I mean we will come across issues from time to time, and that’s just how business works, but I’m very confident that with our position today and the talent we have onboard, along with our teams, issues that do come up will be able to be solved pretty quickly.

Got it, got it. And then just one last one, on the aircraft application you mentioned you're testing, can you just expand on what markets or airframes you're going after there?

It's definitely in the military; that's really all I can say at this point, Josh. It's the military segment.

Got it. Thank you for the time.

Thank you, Josh, for the questions.

We will take our next question from Barry Lewis of Sandler. Please go ahead.

Hi. Thank you for taking my call. The purpose of the call is to ask you, you mentioned the wearables battery, and you mentioned you got the order in May. Where do we stand with that order? I think I heard you talk about the end of the year, but I wanted to clarify that.

Yes, Barry. As we mentioned, what is pretty common for these larger IDIQ contracts has a substantial development period, and one of the milestone events at the conclusion of that development period is the first article testing, and we expect to be in sort of the formal first article testing really towards the middle part of this year, and depending on the outcome of that, which is a critical process with the army, and completion of that first article testing and checking that box, then we would be in a position to potentially receive delivery orders. So, the next major milestone is the initiation and completion of the first article testing, which we expect to start in the middle part of this year.

Thank you very much for answering the question.

Quite welcome. Thanks for the question.

We will take our next question from Stuart Pitchel, a private investor. Please go ahead.

Good morning, gentlemen. This has been a very professional presentation. I have enjoyed it. Recently I read where Mr. Fain exercised some stock options. And I'm wondering when were those stock options set to expire?

The options were set to expire two days past the day I exercised those options. So, I held those options for the life of the option, absent two days, which was a full seven years. Now, when I exercised those options, I used what's called the Net Exercise Method, so I retained all of the shares. It's unanimous with the way I look at it with the purchase of the shares.

Yes, that makes sense. I just wondered when they were set to expire, and so, are you saying they were set to expire two days after you exercised them?

Yes, absolutely.

Okay. Well, thank you very much. Have a nice day. Thanks for taking my call.

Thank you.

There are no further questions at this time. I would like to hand the call back to Michael for any additional or closing remarks.

Well, thank you once again, everybody, for joining us for this call and the first quarter of 2022 recap. We look forward to sharing with you our quarterly progress on each quarter's conference call in the future. As Phil mentioned, we updated our Investor presentation that's on the website. So, please check it out. And everybody have a great and safe day. Thank you very much.

Thank you. That concludes the call. Thank you for your participation. You may now disconnect.